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Filed pursuant to Rule 424(b)(5)
File Nos. 333-19153 and 333-19153-01
PROSPECTUS
$150,000,000
KEYCORP INSTITUTIONAL CAPITAL B
OFFER TO EXCHANGE ITS 8.25% CAPITAL SECURITIES WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND
ALL OF ITS OUTSTANDING 8.25% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
[KEYCORP LOGO]
KEYCORP
------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON MARCH 5, 1997, UNLESS EXTENDED.
KeyCorp Institutional Capital B, a statutory business trust created under
the laws of the State of Delaware (the "Issuer"), hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $150,000,000 aggregate Liquidation Amount of its
8.25% Capital Securities (the "New Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its outstanding
8.25% Capital Securities (the "Old Capital Securities"), of which $150,000,000
aggregate Liquidation Amount is outstanding. Pursuant to the Exchange Offer,
KeyCorp, an Ohio corporation (the "Corporation"), is also exchanging its
guarantee of the payment of Distributions (as defined herein) and payments on
liquidation or redemption of the Old Capital Securities (the "Old Guarantee")
for a like guarantee of the New Capital Securities (the "New Guarantee") and all
of its 8.25% Junior Subordinated Deferrable Interest Debentures (the "Old Junior
Subordinated Debentures"), of which $154,640,000 aggregate principal amount is
outstanding, for a like aggregate principal amount of its 8.25% Junior
Subordinated Deferrable Interest Debentures (the "New Junior Subordinated
Debentures"), which New Guarantee and New Junior Subordinated Debentures also
have been registered under the Securities Act. The Old Capital Securities, the
Old Guarantee and the Old Junior Subordinated Debentures are collectively
referred to herein as the "Old Securities" and the New Capital Securities, the
New Guarantee and the New Junior Subordinated Debentures are collectively
referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and, therefore, will not be
subject to certain restrictions on transfer applicable to the Old Securities,
(ii) the New Capital Securities will not provide for any increase in the
Distribution rate thereon and (iii) the New Junior Subordinated Debentures will
not provide for any increase in the interest rate thereon. See "Description of
New Securities" and "Description of Old Securities." The New Capital Securities
are being offered for exchange in order to satisfy certain obligations of the
Corporation and the Issuer under the Registration Rights Agreement, dated as of
December 30, 1996 (the "Registration Rights Agreement"), among the Corporation,
the Issuer and the Initial Purchaser (as defined herein). In the event that the
Exchange Offer is consummated, any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer and the New Capital
Securities issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement (as defined herein).
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE NEW SECURITIES.
------------------------
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is February 3, 1997.
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The New Capital Securities represent preferred undivided beneficial
interests in the assets of the Issuer. The Corporation is the owner of all of
the common undivided beneficial interests in the assets of the Issuer (the
"Common Securities" and, collectively with the Capital Securities (as defined
below), the "Trust Securities"). The Issuer exists for the sole purposes of (i)
issuing and selling the Trust Securities, (ii) investing the proceeds thereof in
Junior Subordinated Debentures (as defined below) and (iii) engaging in those
activities necessary, or incidental thereto. The Junior Subordinated Debentures
will mature on December 15, 2026 (the "Stated Maturity"). The Capital Securities
will have a preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the Common Securities. See "Description of New Securities -- Description of
Capital Securities -- Subordination of Common Securities."
------------------------
As used herein, (i) the "Indenture" means the Indenture, as amended and
supplemented from time to time, between the Corporation and Bankers Trust
Company, as trustee (the "Debenture Trustee"), pursuant to which the Junior
Subordinated Debentures are to be issued, (ii) the "Trust Agreement" means the
Amended and Restated Trust Agreement relating to the Issuer among the
Corporation, as Depositor, Bankers Trust Company, as Property Trustee (the
"Property Trustee") and Bankers Trust (Delaware), as Delaware Trustee (the
"Delaware Trustee"; and, collectively with the Property Trustee, the "Issuer
Trustees") and the holders, from time to time, of the undivided beneficial
interests in the assets of the Issuer, (iii) the "Guarantee" means the
Guarantee Agreement, as amended and supplemented from time to time, between the
Corporation and Bankers Trust Company, as trustee (the "Guarantee Trustee"),
for the benefit of holders of Capital Securities and (iv) the "Expense
Agreement" means the Agreement as to Expenses and Liabilities, between the
Corporation, as holder of the Common Securities, and the Issuer. In addition,
as the context may require, unless expressly stated otherwise, (i) "Capital
Securities" means the Old Capital Securities and the New Capital Securities,
(ii) "Junior Subordinated Debentures" means the Old Junior Subordinated
Debentures and the New Junior Subordinated Debentures and (iii) "Guarantee"
means the Old Guarantee and the New Guarantee.
------------------------
Except as provided below, the Capital Securities will be represented by
global Capital Securities in fully registered form, deposited with a custodian
for and registered in the name of a nominee of The Depository Trust Company
("DTC"). Beneficial interests in such Capital Securities will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Beneficial interests in such Capital Securities will trade in
DTC's Same-Day Funds Settlement System and secondary market trading activity in
such interests will therefore settle in immediately available funds. The Capital
Securities will be issued, and may be transferred, only in blocks having a
Liquidation Amount of not less than $100,000 (100 Capital Securities). See
"Description of New Securities -- Description of Capital
Securities -- Book-Entry, Delivery and Form."
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable semi-annually in arrears on June 15 and December 15 of each year,
commencing June 15, 1997, at the annual rate of 8.25% of the Liquidation Amount
of $1,000 per Capital Security ("Distributions"). The Corporation has the right
to defer payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Corporation may elect to
begin a new Extension Period subject to the requirements set forth herein. If
interest payments on the Junior Subordinated Debentures are so deferred,
Distributions on the Capital Securities will also be deferred and the
Corporation will not be permitted, subject to certain exceptions described
herein, to declare or pay any cash distributions with respect to the
Corporation's capital stock or debt securities of the Corporation that rank pari
passu with or junior to the Junior Subordinated Debentures. During an Extension
Period, interest on the Junior Subordinated Debentures will continue to accrue
(and the amount of Distributions to which holders of
2
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the Capital Securities are entitled will accumulate) at the rate of 8.25% per
annum, compounded semi-annually, and holders of the Capital Securities will be
required to accrue interest income for United States federal income tax
purposes. See "Description of New Securities -- Description of Junior
Subordinated Debentures -- Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount."
The Corporation has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement taken together,
fully, irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the Capital Securities. See "Relationship Among the Capital
Securities, the Junior Subordinated Debentures, the Guarantee and the Expense
Agreement -- Full and Unconditional Guarantee". The Guarantee of the Corporation
guarantees the payment of Distributions and payments on liquidation or
redemption of the Capital Securities, but only in each case to the extent of
funds held by the Issuer as described herein. See "Description of New
Securities -- Description of Guarantee". If the Corporation does not make
interest payments on the Junior Subordinated Debentures held by the Issuer, the
Issuer will have insufficient funds to pay Distributions on the Capital
Securities. The Guarantee does not cover payment of Distributions when the
Issuer does not have sufficient funds to pay such Distributions. In such event,
a holder of the Capital Securities may institute a legal proceeding directly
against the Corporation to enforce payment of such amounts under the Indenture.
See "Description of New Securities -- Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights By Holders of Capital Securities".
The obligations of the Corporation under the Guarantee and the Junior
Subordinated Debentures are unsecured and subordinate and junior in right of
payment to all Senior Indebtedness (as defined herein) of the Corporation. See
"Description of New Securities -- Description of Junior Subordinated
Debentures -- Subordination."
The Capital Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at maturity or
their earlier redemption. The Junior Subordinated Debentures are redeemable
prior to maturity at the option of the Corporation (i) on or after December 15,
2006, in whole at any time or in part from time to time at the redemption
prices set forth herein, or (ii) at any time, in whole (but not in part) within
90 days following the occurrence and continuation of a Tax Event or Capital
Treatment Event (each as defined herein), at the Redemption Price (as defined
herein). See "Description of New Securities -- Description of Capital
Securities -- Redemption". The Corporation has committed to the Federal Reserve
Bank of Cleveland (the "Reserve Bank") that the Corporation will not exercise
its right to cause redemption of the Junior Subordinated Debentures or the
Capital Securities (prior to the Stated Maturity) without having received the
prior approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") to do so, if then required under applicable Federal Reserve
capital guidelines or policies. See "Description of New Securities --
Description of Junior Subordinated Debentures -- Redemption."
The holder of the Common Securities (i.e., the Corporation) will have the
right at any time to terminate the Issuer and, after satisfaction of liabilities
to creditors of the Issuer as required by applicable law and the Expense
Agreement, cause the Junior Subordinated Debentures to be distributed to the
holders of the Capital Securities in exchange therefore upon liquidation of the
Issuer. See "Description of New Securities -- Description of Capital
Securities -- Liquidation Distribution upon Termination."
In the event of the termination of the Issuer, after satisfaction of
liabilities to creditors of the Issuer as required by applicable law and the
Expense Agreement, the holders of the Capital Securities will be entitled to
receive as a preference a Liquidation Amount of $1,000 per Capital Security plus
accumulated and unpaid Distributions thereon to the date of payment, which may
be in the form of a distribution of such amount in Junior Subordinated
Debentures, subject to certain exceptions. See "Description of New Securities --
Description of Capital Securities -- Liquidation Distribution upon Termination."
The Issuer is making the Exchange Offer in reliance on the position taken
by the staff of the Division of Corporation Finance of the Securities and
Exchange Commission (the "Commission") in certain interpretive letters addressed
to third parties in other transactions. However, neither the Corporation nor the
Issuer has
3
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sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer. Based on these
interpretations, and subject to the two immediately following sentences, the
Corporation and the Issuer believe that New Capital Securities issued pursuant
to the Exchange Offer in exchange for Old Capital Securities may be offered for
resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an "affiliate" of the Corporation or the
Issuer within the meaning of Rule 405 under the Securities Act or who intends to
participate in the Exchange Offer for the purpose of distributing New Capital
Securities, or any broker-dealer who purchased Old Capital Securities from the
Issuer to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or
any other available exemption under the Securities Act, (a) will not be able to
rely on the interpretations of the staff of the Division of Corporation Finance
of the Commission set forth in the above-mentioned interpretive letters, (b)
will not be permitted or entitled to tender such Old Capital Securities in the
Exchange Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities (a "Participating Broker-Dealer") and
exchanges such Old Capital Securities for New Capital Securities, then such
Participating Broker-Dealer must deliver a prospectus meeting the requirements
of the Securities Act in connection with any resales of such New Capital
Securities. See "Plan of Distribution" and "The Exchange Offer -- Resales of New
Capital Securities."
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently exists no market.
Although the Initial Purchaser has informed the Corporation and the Issuer that
it currently intends to make a market in the New Capital Securities, it is not
obligated to do so, and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Capital Securities. The Corporation
currently does not intend to apply for listing of the New Capital Securities on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on March 5, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation and the Issuer (in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended).
Tenders of Old Capital Securities may be withdrawn at any time on or prior to
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Issuer and to the terms and provisions
of the Registration Rights Agreement. Old Capital Securities may be tendered in
whole or in part having a Liquidation Amount of not less than $100,000 (100
Capital Securities) and or any integral multiple of $1,000 Liquidation Amount (1
Capital Security) in excess thereof. The Corporation has agreed to pay all
expenses of the Exchange Offer, except as otherwise specified herein. See "The
Exchange Offer--Fees and Expenses." Each New Capital Security will pay
cumulative Distributions from the most recent Distribution Date (as defined
herein) on the Old Capital Securities surrendered in
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exchange for such New Capital Securities or, if no Distributions have been paid
on such Old Capital Securities, from December 30, 1996. Holders of the Old
Capital Securities whose Old Capital Securities are accepted for exchange will
not receive accumulated Distributions on such Old Capital Securities for any
period from and after the last Distribution Date on such Old Capital Securities
prior to the original issue date of the New Capital Securities or, if no such
Distributions have been paid, will not receive any accumulated Distributions on
such Old Capital Securities, and will be deemed to have waived the right to
receive any Distributions on such Old Capital Securities accumulated from and
after such Distribution Date or, if no such interest has been paid or duly
provided for, from and after December 30, 1996. This Prospectus, together with
the Letter of Transmittal, is being sent to all registered holders of Old
Capital Securities as of February 3, 1997.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Corporation nor the Issuer will have any
further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Capital Securities held by them. To the extent that Old Capital Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Capital Securities could be adversely affected. See "Risk
Factors -- Consequences of Failure to Exchange Old Capital Securities."
Neither the Corporation nor the Issuer will receive any cash proceeds from
the issuance of the New Securities offered hereby. No dealer-manager is being
used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."
This Prospectus may be used by Key Capital Markets, Inc. In connection with
offers and sales related to market-making transactions in New Capital Securities
effected from time to time after the commencement of the offering to which this
Prospectus relates, Key Capital Markets, Inc. may act as principal or agent in
such transactions, including as agent for the counterparty when acting as
principal or as agent for both counterparties, and may receive compensation in
the form of discounts and commissions, including from both counterparties when
it acts as agent for both. Such sales will be made at prevailing market prices
at the time of sale, at prices related thereto or at negotiated prices.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE CORPORATION OR THE
ISSUER ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD CAPITAL SECURITIES IN
ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT
BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
------------------------
THE NEW CAPITAL SECURITIES WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY IN
BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000. ANY TRANSFER, SALE
OR OTHER DISPOSITION OF CAPITAL SECURITIES IN A BLOCK HAVING A LIQUIDATION
AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT
WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT OF
DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO
HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES.
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AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. In addition, such reports, proxy statements
and other information concerning the Corporation can be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005,
on which exchange securities of the Corporation are listed.
The Corporation and the Issuer have filed with the Commission a
Registration Statement on Form S-4 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Corporation and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
and the financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission, at the addresses set forth above.
Statements made in this Prospectus concerning the contents of any documents
referred to herein are not necessarily complete, and in each instance are
qualified in all respects by reference to the copy of such document filed as an
exhibit to the Registration Statement.
No separate financial statements of the Issuer have been included herein.
The Corporation and the Issuer do not consider that such financial statements
would be material to holders of the Capital Securities because the Issuer is a
newly formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures of the
Corporation and issuing the Trust Securities. The Corporation has, through the
Guarantee, the Trust Agreement, the Junior Subordinated Debentures, the
Indenture and the Expense Agreement (each as defined herein), taken together,
fully and unconditionally guaranteed all of the Issuer's obligations under the
Capital Securities. See "KeyCorp Institutional Capital B" and "Description of
New Securities". In addition, the Corporation does not expect that the Issuer
will be filing reports under the Exchange Act with the Commission.
THE PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO ANY
PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF
SUCH PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY
REFERENCE HEREIN (OTHER THAN EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE
INTO THE TEXTS OF SUCH DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE
DIRECTED TO: THOMAS C. STEVENS, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY, KEYCORP, 127 PUBLIC SQUARE, CLEVELAND, OHIO 44114-1306, TELEPHONE
NUMBER (216) 689-6300. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY FEBRUARY 25, 1997.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act are incorporated into
this Prospectus by reference:
1. The Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. The Corporation's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; and
3. The Corporation's Current Reports on Form 8-K filed on January 19, 1996,
April 22, 1996, July 18, 1996, October 18, 1996, November 25, 1996 and
January 17, 1997.
Each document or report filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated or
deemed to be incorporated by reference herein or therein, shall be deemed to be
modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
------------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION,
IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE CORPORATION OR THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE CORPORATION OR THE ISSUER SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................. 6
Incorporation of Certain Documents by Reference....................... 7
Summary............................................................... 9
Risk Factors.......................................................... 16
KeyCorp............................................................... 22
Selected Consolidated Financial Data of KeyCorp....................... 25
KeyCorp Institutional Capital B....................................... 27
Use of Proceeds....................................................... 27
Capitalization........................................................ 28
Accounting Treatment.................................................. 29
The Exchange Offer.................................................... 30
Description of New Securities......................................... 39
Description of Old Securities......................................... 64
Relationship Among the Capital Securities, the Junior Subordinated
Debentures, the Guarantee and the Expense Agreement................. 64
Certain Federal Income Tax Consequences............................... 66
Certain ERISA Considerations.......................................... 69
Plan of Distribution.................................................. 70
Validity of New Securities............................................ 71
Experts............................................................... 71
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by, and is subject to,
the more detailed information and financial statements contained elsewhere and
incorporated by reference in this Prospectus.
KEYCORP
GENERAL
The Corporation was formed on March 1, 1994, when "old KeyCorp," a bank
holding company headquartered in Albany, New York, with approximately $33
billion in assets at December 31, 1993, merged into and with Society
Corporation, a bank holding company headquartered in Cleveland, Ohio
("Society"), with approximately $27 billion in assets at December 31, 1993. In
the merger, Society, an Ohio corporation, was the surviving corporation, but
changed its name to KeyCorp. The merger was accounted for as a pooling of
interests. Accordingly, all financial data of the Corporation set forth herein
(or incorporated herein by reference) has been restated to give effect to the
merger of old KeyCorp into and with Society. At September 30, 1996, KeyCorp was
one of the nation's largest bank holding companies, based upon consolidated
total assets of approximately $65.4 billion.
The Corporation provides a wide range of banking, fiduciary and other
financial services to its corporate, individual and institutional customers
through four primary lines of business: Corporate Banking, National Consumer
Finance, Community Banking and Key PrivateBank (Personal Financial Services). In
addition to the customary banking services of accepting deposits and making
loans, the Corporation's bank and trust company subsidiaries provide specialized
services tailored to specific markets, including personal and corporate trust
services, personal financial services, customer access to mutual funds, cash
management services, investment banking services and international banking
services. Through its subsidiary banks, trust companies and registered
investment adviser subsidiaries, the Corporation provides investment management
services to institutional and individual clients, including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, and
high net worth individuals. Several of the Corporation's investment management
subsidiaries also serve as investment advisers to the Corporation's proprietary
mutual funds.
The Corporation also provides other financial services both in and outside
of its primary banking markets through its nonbank subsidiaries. These services
include accident and health insurance on loans made by subsidiary banks, venture
capital community development financing, securities underwriting and brokerage,
automobile financing and other financial services. The Corporation is also an
equity participant in a joint venture with a number of other unaffiliated bank
holding companies in Electronic Payment Services, Inc. See "KeyCorp."
RECENT DEVELOPMENTS
The Corporation announced on November 25, 1996 the following strategic
actions it has undertaken or will undertake in the next year as part of its
transformation to a nationwide, bank-based financial services company:
- Formation of a single nationwide bank from the Corporation's current
network of 12 banks in 14 states and four regions of the United States.
- Consolidation of nearly 140 of the branch offices of its subsidiaries,
known as "KeyCenters," into other KeyCenters.
- Reduction of approximately 2,700 positions, or 10% of its current
employment base.
As a consequence of these actions, the Corporation recorded a fourth
quarter 1996 restructuring charge of $100 million.
On January 16, 1997, the Corporation reported 1996 fourth quarter earnings
of $151 million, or $.67 per common share, down from $207 million, or $.86 per
share, in the fourth quarter of 1995. Earnings in 1996 reflect the restructuring
charge (described above) of $100 million ($66 million after tax, or $.29 per
common share).
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Including the restructuring charge and the Corporation's share of a
third-quarter government mandated assessment of $17 million ($11 million after
tax, or $.05 per common share) to recapitalize the Savings Association Insurance
Fund, net income and earnings per common share for the full year in 1996 were
$783 million and $3.37, respectively, compared with $825 million, or $3.45 per
common share in 1995.
On November 25, 1996, the Corporation also announced: (a) its intention to
sell slightly more than 140 KeyCenters in primarily rural areas, and (b) that
its Board of Directors authorized a new share buyback program, whereby up to 12
million common shares may be repurchased by the end of 1997. As of December 31,
1996, approximately 3 million common shares have been repurchased under this
program.
See "KeyCorp -- Recent Developments" for an analysis of the major
components of the fourth quarter restructuring charge and further information
concerning fourth quarter earnings.
KEYCORP INSTITUTIONAL CAPITAL B
The Issuer is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Corporation, as Depositor,
and Bankers Trust (Delaware), as Delaware Trustee, and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on December 18, 1996.
The Issuer's business and affairs are conducted by its trustees: Bankers Trust
Company, as Property Trustee, and Bankers Trust (Delaware), as Delaware Trustee.
The Issuer exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of Trust Securities to
acquire the Old Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary or incidental thereto (such as effecting the Exchange
Offer and registering the transfer of the Trust Securities). Accordingly, the
Junior Subordinated Debentures are the sole assets of the Issuer, and payments
under the Junior Subordinated Debentures and the Expense Agreement will be the
sole source of revenue of the Issuer. See "KeyCorp Institutional Capital B."
THE EXCHANGE OFFER
The Exchange Offer......... Up to $150,000,000 aggregate Liquidation Amount of
New Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount
of Old Capital Securities. Old Capital Securities
may be tendered for exchange in whole or in part
in a Liquidation Amount of $100,000 (100 Capital
Securities) or any integral multiple of $1,000 in
excess thereof, provided that if any Old Capital
Securities are tendered in exchange in part, the
untendered Liquidation Amount must be $100,000 or
any integral multiple of $1,000 in excess
thereof. The Corporation and the Issuer are
making the Exchange Offer in order to satisfy
their obligations under the Registration Rights
Agreement relating to the Old Capital Securities.
For a description of the procedures for tendering
Old Capital Securities, see "The Exchange
Offer -- Procedures for Tendering Old Capital
Securities."
Expiration Date............ 5:00 p.m., New York City time, on March 5, 1997
(such time on such date being hereinafter called
the "Expiration Date") unless the Exchange Offer
is extended by the Corporation and the Issuer (in
which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange
Offer is extended). See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain
conditions, which may be waived by the
Corporation and the Issuer in their sole
discretion. The Exchange Offer is not conditioned
upon any minimum Liquidation
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Amount of Old Capital Securities being tendered.
See "The Exchange Offer -- Conditions to the
Exchange Offer."
The Corporation and the Issuer reserve the right in
their sole discretion, subject to applicable law,
at any time and from time to time, (i) to delay
the acceptance of the Old Capital Securities for
exchange, (ii) to terminate the Exchange Offer if
certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date of
the Exchange Offer and retain all Old Capital
Securities tendered pursuant to the Exchange
Offer, subject, however, to the right of holders
of Old Capital Securities to withdraw their
tendered Old Capital Securities, or (iv) to waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
Withdrawal Rights.......... Tenders of Old Capital Securities may be withdrawn
at any time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to
Bankers Trust Company, as exchange agent (the
"Exchange Agent") in conformity with certain
procedures set forth below under "The Exchange
Offer -- Withdrawal Rights."
Procedures for Tendering
Old Capital Securities..... Tendering holders of Old Capital Securities must
complete and sign a Letter of Transmittal in
accordance with the instructions contained
therein and forward the same by mail, facsimile
or hand delivery, together with any other
required documents, to the Exchange Agent, either
with the Old Capital Securities to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Capital Securities.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer, including an
Agent's Message in lieu of the Letters of
Transmittal. Holders of Old Capital Securities
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
are urged to contact such person promptly if they
wish to tender Old Capital Securities pursuant to
the Exchange Offer. See "The Exchange
Offer -- Procedures for Tendering Old Capital
Securities."
Letters of Transmittal and certificates
representing Old Capital Securities should not be
sent to the Corporation or the Issuer. Such
documents should only be sent to the Exchange
Agent. Questions regarding how to tender and
requests for information should be directed to
the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
Resales of New Capital
Securities............... The Corporation and the Issuer believe that New
Capital Securities issued pursuant to this
Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other
than a holder who is a broker-dealer) without
further compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of
such holder's business and that such holder is
not participating, and has no arrangement or
understanding with any person to participate, in
a distribution (within the meaning of the
Securities Act) of such New Capital
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Securities. However, any holder of Old Capital
Securities who is an "affiliate" of the
Corporation or the Issuer or who intends to
participate in the Exchange Offer for the purpose
of distributing the New Capital Securities, or
any broker-dealer who purchased the Old Capital
Securities from the Issuer to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely
on the interpretations of the staff of the
Division of Corporation Finance of the Commission
set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to
tender such Old Capital Securities in the
Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption
from such requirements. In addition, any
Participating Broker-Dealer must deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales of
such New Capital Securities. See "The Exchange
Offer -- Resales of New Capital Securities."
Exchange Agent............. The Exchange Agent with respect to the Exchange
Offer is Bankers Trust Company. The addresses,
and telephone and facsimile numbers of the
Exchange Agent are set forth under "The Exchange
Offer -- Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds............ Neither the Corporation nor the Issuer will receive
any cash proceeds from the issuance of the New
Capital Securities offered hereby. See "Use of
Proceeds."
Certain United States
Federal Income Tax
Considerations; ERISA
Considerations........... Holders of Old Capital Securities should review the
information set forth under "Certain Federal
Income Tax Consequences" and "ERISA
Considerations" prior to tendering Old Capital
Securities in the Exchange Offer.
DESCRIPTION OF NEW CAPITAL SECURITIES
General.................... The Capital Securities represent preferred
undivided beneficial interests in the assets of
the Issuer and will have a preference under
certain circumstances with respect to
Distributions and amounts payable on liquidation,
redemption or otherwise over the Common
Securities. See "Description of New
Securities -- Subordination of Common
Securities". The sole assets of the Issuer are
the Junior Subordinated Debentures, and payments
under the Junior Subordinated Debentures and the
Expense Agreement will be the sole sources of
revenue of the Issuer. The Junior Subordinated
Debentures are unsecured subordinated debt
securities issued under the Indenture between the
Corporation and Bankers Trust Company, as
trustee.
Securities Offered......... Up to $150,000,000 aggregate Liquidation Amount of
the Issuer's 8.25% Capital Securities, which have
been registered under the Securities Act
(Liquidation Amount $1,000 per Capital Security).
The New Capital Securities will be issued, and
the Old Capital Securities were issued, under the
Trust Agreement. See "Description of New
Securities -- Description of the Capital
Securities -- General." The terms of
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<PAGE> 13
the New Capital Securities are identical in all
material respects to the terms of the Old Capital
Securities, except that the New Capital
Securities have been registered under the
Securities Act and, therefore, are not subject to
certain restrictions on transfer applicable to
the Old Capital Securities and will not provide
for any increase in the Distribution rate
thereon. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer," "Description of
New Securities" and "Description of Old
Securities."
Distributions.............. Holders of the Capital Securities will be entitled
to receive as a preference cumulative cash
Distributions accruing from the date of original
issuance of the Old Capital Securities and
payable semi-annually in arrears on June 15 and
December 15 of each year, commencing June 15,
1997, at a rate of 8.25% per annum to the persons
in whose names the Capital Securities are
registered at the close of business on the
relevant record dates. See "Description of New
Securities -- Description of Capital
Securities -- Distributions."
Holders of Old Capital Securities whose Old Capital
Securities are accepted for exchange will not
receive accumulated Distributions on such Old
Capital Securities for any period from and after
the last Distribution date with respect to such
Old Capital Securities prior to the original
issue date of the New Capital Securities or, if
no such Distributions have been made, will not
receive any accumulated Distributions on such Old
Capital Securities, and will be deemed to have
waived the right to receive any Distributions on
such Old Capital Securities accumulated from and
after such Distribution date or, if no such
Distributions have been made, from and after
December 30, 1996.
The Junior Subordinated Debentures are unsecured
and rank subordinate and junior in right of
payment to all Senior Indebtedness (as defined
herein) of the Corporation. The ability of the
Issuer to pay amounts due on the Capital
Securities is solely dependent upon the
Corporation making payments on the Junior
Subordinated Debentures as and when required. See
"Risk Factors -- Ranking of Subordinated
Obligations Under the Guarantee and the Junior
Subordinated Debentures."
Option to Extend Interest
Payment Period........... So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing,
the Corporation has the right to defer payments
of interest on the Junior Subordinated Debentures
at any time or from time to time by extending the
interest payment period thereon for up to 10
consecutive semi-annual periods (an "Extension
Period"); provided, however, that no Extension
Period may extend beyond the Stated Maturity of
the Junior Subordinated Debentures (December 15,
2026). If interest payments on the Junior
Subordinated Debentures are deferred,
Distributions on the Capital Securities also will
be deferred and the Corporation will not be
permitted, subject to certain exceptions set
forth herein, to declare or pay any cash
distributions with respect to the Corporation's
capital stock or debt securities of the
Corporation that rank pari passu with or junior
to the Junior Subordinated Debentures. During an
Extension Period, Distributions on the Capital
Securities will continue to accumulate and
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Distributions that are in arrears will bear
interest on the amount thereof at a rate of 8.25%
per annum (to the extent permitted by law),
compounded semi-annually, and holders of the
Capital Securities will be required to accrue
interest income for United States federal income
tax purposes in advance of receipt of cash
related to such income. Upon the termination of
any Extension Period and the payment of all
amounts then due, the Corporation may elect to
begin a new Extension Period, subject to the
requirements set forth herein. See "Description
of New Securities -- Description of Capital
Securities -- Distributions."
The Corporation has no current plan to exercise its
right to defer payments of interest by extending
the interest payment period on the Junior
Subordinated Debentures. However, should the
Corporation elect to exercise such right in the
future, the market price of the Capital
Securities is likely to be affected. See "Risk
Factors -- Option to Extend Interest Payment
Period; Tax Consequences", "Description of New
Securities -- Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original
Issue Discount."
Redemption................. The Trust Securities are subject to mandatory
redemption upon repayment of the Junior
Subordinated Debentures at maturity or upon their
earlier redemption. The Junior Subordinated
Debentures are redeemable, at the option of the
Corporation, (i) in whole (but not in part) at
any time within 90 days following the occurrence
and continuation of a Tax Event or Capital
Treatment Event, or (ii) on or after December 15,
2006, in whole at any time or in past from time
to time in each case at the applicable Redemption
Price. See "Risk Factors -- Tax Event or Capital
Treatment Event Redemption" and "Description of
New Securities -- Description of Capital
Securities -- Redemption."
See "Risk Factors -- Possible Tax Law Changes
Affecting the Capital Securities" for a
discussion of certain legislative proposals that,
if adopted, could give rise to a Tax Event, which
may permit the Corporation to cause a redemption
of the Capital Securities prior to December 15,
2006.
No sinking fund will be established for the benefit
of the Capital Securities.
Exchange of Capital
Securities for Junior
Subordinated
Debentures............... The holder of the Common Securities (i.e., the
Corporation) has the right to terminate the
Issuer at any time and, after satisfaction of
liabilities to creditors of the Issuer as
required by applicable law and the Expense
Agreement, cause the Junior Subordinated
Debentures to be distributed to the holders of
the Capital Securities in liquidation of the
Issuer. See "Description of New
Securities -- Description of Capital
Securities -- Liquidation Distribution upon
Termination."
The Guarantee.............. The payment of Distributions and payments on the
liquidation of the Issuer or the redemption of
the Capital Securities are guaranteed by the
Corporation to the extent that the Issuer has
sufficient funds available therefor. Such
guarantee is subordinate and junior in right of
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payment to all Senior Indebtedness of the
Corporation. See "Risk Factors -- Rights Under
the Guarantee" and "Description of New
Securities -- Description of Guarantee."
Transfer................... The Capital Securities will be issued, and may be
transferred, only in blocks having a Liquidation
Amount of not less than $100,000 (100 Capital
Securities). Any transfer, sale or other
disposition of Capital Securities resulting in a
block having a Liquidation Amount of less than
$100,000 shall be deemed to be void and of no
legal effect whatsoever.
ERISA Considerations....... Prospective purchasers must carefully consider the
restrictions on purchase set forth under "Certain
ERISA Considerations."
Absence of Market for the
New Capital Securities.... The New Capital Securities will be a new issue of
securities for which there currently is no
market. Although Credit Suisse First Boston
Corporation, the initial purchaser of the Old
Capital Securities (the "Initial Purchaser"), has
informed the Corporation and the Issuer that it
currently intends to make a market in the New
Capital Securities, it is not obligated to do so,
and any such market making may be discontinued at
any time without notice. Accordingly, there can
be no assurance as to the development or
liquidity of any market for the New Capital
Securities. The Issuer and the Corporation do not
intend to apply for listing of the New Capital
Securities on any securities exchange or for
quotation through the National Association of
Securities Dealers Automated Quotation System.
RISK FACTORS
Holders tendering Old Capital Securities in the Exchange Offer should
carefully consider the matters set forth under "Risk Factors."
For further information regarding the New Securities, see "Description of
New Securities."
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RISK FACTORS
Holders of Old Capital Securities should carefully review the information
contained elsewhere in this Prospectus and should particularly consider the
following matters before deciding whether to accept the Exchange Offer.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Corporation under the Junior Subordinated Debentures
and the Guarantee are unsecured and rank subordinate and junior in right of
payment to all Senior Indebtedness of the Corporation. Substantially all of the
Corporation's existing indebtedness constitutes Senior Indebtedness. Because the
Corporation is a holding company, the right of the Corporation to participate in
any distribution of assets of any subsidiary, including its banking and
nonbanking subsidiaries, upon such subsidiary's dissolution, winding-up,
liquidation or reorganization or otherwise (and thus the ability of holders of
the Capital Securities to benefit indirectly from such distribution), is subject
to the prior claims of creditors of that subsidiary, except to the extent that
the Corporation may itself be a creditor of that subsidiary and its claims are
recognized. There are various legal limitations on the extent to which certain
of the Corporation's subsidiaries may extend credit, pay dividends or otherwise
supply funds to, or engage in transactions with, the Corporation or certain of
its other subsidiaries. Accordingly, the Junior Subordinated Debentures and
Guarantee will be effectively subordinated to all existing and future
liabilities of the Corporation's subsidiaries, and holders of Junior
Subordinated Debentures and the Guarantee should look only to the assets of the
Corporation for payments on the Junior Subordinated Debentures and the
Guarantee. See "KeyCorp." None of the Indenture, the Guarantee, the Trust
Agreement or the Expense Agreement places any limitation on the amount of
secured or unsecured debt, including Senior Indebtedness, that may be incurred
by the Corporation. See "Description of New Securities -- Description of
Guarantee -- Status of the Guarantee" and "-- Description of Junior Subordinated
Debentures -- Subordination."
The ability of the Issuer to pay amounts due on the Capital Securities is
solely dependent upon the Corporation making payments on the Junior Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Indenture) has occurred
and is continuing with respect to the Junior Subordinated Debentures (a
"Debenture Event of Default"), the Corporation has the right under the Indenture
to defer the payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. See
"Description of New Securities -- Description of Junior Subordinated
Debentures -- Debenture Events of Default." As a consequence of any such
deferral, semi-annual Distributions on the Capital Securities by the Issuer will
be deferred (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate additional Distributions thereon at the
rate of 8.25% per annum, compounded semi-annually from the relevant payment date
for such Distributions) during any such Extension Period. During any such
Extension Period, the Corporation may not, and may not permit any subsidiary of
the Corporation to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
the Corporation's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation (including other junior subordinated debentures)
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Corporation of the debt securities of any subsidiaries of the
Corporation if such guarantee ranks pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Corporation
in connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
shareholder stock purchase plan or in connection with the issuance of capital
stock of the Corporation (or securities convertible into or exercisable for such
stock) as consideration in an acquisition transaction entered into prior
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to the Extension Period, (b) as a result of an exchange or conversion of any
class or series of the Corporation's capital stock for any other class or series
of the Corporation's capital stock or of any class or series of the
Corporation's indebtedness for any class or series of the Corporation's capital
stock, (c) the purchase of fractional interests in shares of the Corporation's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with the implementation or amendment of the Corporation's
shareholders' rights plan (or any successor thereto), or the issuance of rights,
stock or other property under any such rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the
Corporation may further defer the payment of interest, provided that no
Extension Period may exceed 10 consecutive semi-annual periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the annual rate of 8.25%, compounded
semi-annually, to the extent permitted by applicable law), the Corporation may
elect to begin a new Extension Period subject to the above conditions. There is
no limitation on the number of times that the Corporation may elect to begin an
Extension Period. See "Description of New Securities -- Description of Capital
Securities -- Distributions" and " -- Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect of
its pro rata share of the Junior Subordinated Debentures held by the Issuer for
United States federal income tax purposes. As a result, a holder of Capital
Securities will include such income in gross income for United States federal
income tax purposes in advance of the receipt of cash, and will not receive the
cash related to such income from the Issuer if the holder disposes of the
Capital Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and "-- Sales or Redemption of Capital Securities."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Corporation elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of the Corporation's right to defer interest payments, the
market price of the Capital Securities (which represent preferred undivided
beneficial interests in the assets of the Issuer) may be more volatile than the
market prices of other securities on which original issue discount accrues that
are not subject to such deferrals.
TAX EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event or Capital
Treatment Event, the Corporation has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) at any time within 90 days following the
occurrence of such Tax Event or Capital Treatment Event and therefore cause a
mandatory redemption of the Capital Securities. Any such redemption shall be at
a price equal to the Make-Whole Amount (as defined in "Description of New
Securities -- Description of Capital Securities -- Redemption"), together with
accumulated Distributions to but excluding the date fixed for redemption. The
Corporation has committed to the Reserve Bank that the Corporation will not
exercise such right without having received prior approval of the Federal
Reserve to do so, if then required under applicable Federal Reserve capital
guidelines or policies.
A "Tax Event" means the receipt by the Issuer of an opinion of counsel to
the Corporation experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced proposed change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which
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pronouncement or decision is announced on or after the date of issuance of the
Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the date
of delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Corporation on the Junior Subordinated Debentures
is not, or within 90 days of delivery of such opinion, will not be, deductible
by the Corporation, in whole or in part, for United States federal income tax
purposes or (iii) the Issuer is, or will be within 90 days of the date of the
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges. See "-- Possible Tax Law Changes Affecting the
Capital Securities" for a discussion of certain legislative proposals that, if
adopted, could give rise to a Tax Event, which may permit the Corporation to
cause a redemption of the Capital Securities prior to December 15, 2006.
A "Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities under the Trust Agreement, there is more than an insubstantial risk
that the Corporation will not be entitled to treat an amount equal to the
Liquidation Amount of the Capital Securities as "Tier I Capital" (or the then
equivalent thereof) for purposes of applicable Federal Reserve capital
guidelines, as then in effect. See "Capitalization."
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holder of the Common Securities (i.e., the Corporation) has the right
at any time to terminate the Issuer and, after satisfaction of liabilities to
creditors of the Issuer in accordance with applicable law and the Expense
Agreement, cause the Junior Subordinated Debentures to be distributed to the
holders of the Capital Securities and Common Securities in liquidation of the
Issuer. The Corporation has committed to the Reserve Bank that, so long as the
Corporation or any affiliate is a holder of Common Securities, the Corporation
will not exercise such right without having received the prior approval of the
Federal Reserve to do so, if then required under applicable Federal Reserve
capital guidelines or policies. See "Description of New Securities --
Description of Capital Securities -- Liquidation Distribution upon Termination."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
for Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a liquidation of the Issuer occurs. Accordingly, the
Capital Securities or the Junior Subordinated Debentures that a holder of
Capital Securities may receive on liquidation of the Issuer may trade at a
discount to the price that the investor paid to purchase the Capital Securities
offered hereby. Because holders of Capital Securities may receive Junior
Subordinated Debentures on termination of the Issuer, prospective purchasers of
Capital Securities are also making an investment decision with regard to the
Junior Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein. See "Description
of New Securities -- Description of Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
Bankers Trust Company will act as the Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. Bankers
Trust Company will also act as Debenture Trustee for the Junior Subordinated
Debentures under the Indenture and as Property Trustee under the Trust
Agreement. The Guarantee guarantees to the holders of the Capital Securities the
following payments, to the extent not paid by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Issuer has funds on hand available therefor at such time; (ii)
the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time; and (iii) upon a voluntary or involuntary termination, winding-up
or liquidation of the Issuer (unless the Junior Subordinated Debentures are
distributed to holders of the Capital
18
<PAGE> 19
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment, to the extent that
the Issuer has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer remaining available for distribution to holders
of the Capital Securities on liquidation of the Issuer. The Guarantee is
subordinate as described under "--Ranking of Subordinated Obligations under the
Guarantee and the Junior Subordinated Debentures." The holders of at least a
majority in aggregate Liquidation Amount of the outstanding Capital Securities
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Capital Securities may
institute a legal proceeding directly against the Corporation to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the Issuer, the Guarantee Trustee or any other person or entity. If the
Corporation were to default on its obligation to pay amounts payable under the
Junior Subordinated Debentures, the Issuer may lack funds for the payment of
Distributions or amounts payable on redemption of the Capital Securities or
otherwise, and, in such event, holders of the Capital Securities would not be
able to rely upon the Guarantee for payment of such amounts. Instead, if a
Debenture Event of Default has occurred and is continuing and such event is
attributable to the failure of the Corporation to pay any amounts payable in
respect of the Junior Subordinated Debentures on the payment date on which such
payment is due, then a holder of Capital Securities may institute a legal
proceeding directly against the Corporation for enforcement of payment to such
holder of any amounts payable in respect of such Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Capital Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Corporation will have a right of set-off under the Indenture
to the extent of any payment made by the Corporation to such holder of Capital
Securities in the Direct Action. Except as described herein, holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or assert directly any other
rights in respect of the Junior Subordinated Debentures. See "Description of
New Securities -- Description of Junior Subordinated Debentures -- Enforcement
of Certain Rights by Holders of Capital Securities," "-- Debenture Events of
Default" and "-- Description of Guarantee." The Trust Agreement provides that
each holder of Capital Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities and the Guarantee
and the exercise of the Issuer's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events described herein. The Property Trustee and the
holder of the Common Securities (i.e., the Corporation) may, subject to certain
conditions, amend the Trust Agreement without the consent of holders of a
majority in aggregate Liquidated Amount of the Capital Securities to cure any
ambiguity or to make other provisions not inconsistent with existing provisions
of the Trust Agreement or to ensure that the Issuer will be classified for
United States federal income tax purposes as other than an association taxable
as a corporation or as a grantor trust; provided, however, that any such action
does not adversely affect in any material respect the interests of holders of
Capital Securities. See "Description of New Securities -- Description of Capital
Securities -- Voting Rights; Amendment of Trust Agreement" and "-- Removal of
Issuer Trustees; Appointment of Successors."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights
19
<PAGE> 20
to have such Old Capital Securities registered under the Securities Act or to
any similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Corporation and the Issuer do not intend to register
under the Securities Act any Old Capital Securities which remain outstanding
after consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Old Capital Securities are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
series of Capital Securities under the Trust Agreement and, accordingly, will
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement. See
"Description of New Securities -- Description of the Capital Securities --
General."
The Old Capital Securities provide that, if the Exchange Offer is not
consummated on or prior to the 30th day after the date hereof, the Distribution
rate borne by the Old Capital Securities will increase by 0.25% per annum
commencing on the 31st day after the date hereof, until the Exchange Offer is
consummated. See "Description of Old Securities." Following consummation of the
Exchange Offer, the Old Capital Securities will not be entitled to any increase
in the Distribution rate thereon. The New Capital Securities will not be
entitled to any such increase in the Distribution rate thereon.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Corporation believes are
currently owned by, a relatively small number of beneficial owners. The Old
Capital Securities have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the New Capital Securities. Although the New Capital Securities
will generally be permitted to be resold or otherwise transferred by the holders
(who are not affiliates of the Corporation or the Issuer) without compliance
with the registration requirements under the Securities Act, they will
constitute a new issue of securities with no established trading market. Capital
Securities may be transferred by the holders thereof only in blocks having a
Liquidation Amount of not less than $100,000 (100 Capital Securities). The
Corporation and the Issuer have been advised by the Initial Purchaser that the
Initial Purchaser presently intends to make a market in the New Capital
Securities. However, the Initial Purchaser is not obligated to do so and any
market-making activity with respect to the New Capital Securities may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Capital Securities or the Old Capital Securities or as to the liquidity
of or the trading market for the New Capital Securities or the Old Capital
Securities. If an active public market does not develop, the market price and
liquidity of the New Capital Securities may be adversely affected.
If a public trading market develops for the New Capital Securities, future
trading prices of such securities will depend on many factors, including, among
other things, prevailing interest rates, results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Corporation, the New Capital Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are affiliates of the Corporation or the Issuer may
publicly offer for sale or resell the New Capital Securities only in compliance
with the provisions of Rule 144 under the Securities Act.
Each Participating Broker-Dealer that receives New Capital Securities for
its own account must acknowledge that it will deliver a prospectus in connection
with any resale of such New Capital Securities. See "Plan of Distribution."
20
<PAGE> 21
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Exchange Agent of such Old Capital Securities, a properly
completed and duly executed Letter of Transmittal or Agent's Message in lieu
thereof and all other required documents. Therefore, holders of the Old Capital
Securities desiring to tender such Old Capital Securities in exchange for New
Capital Securities should allow sufficient time to ensure timely delivery.
Neither the Corporation, the Issuer nor the Exchange Agent is under any duty to
give notification of defects or irregularities with respect to the tenders of
Old Capital Securities for exchange.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Revenue
Reconciliation Bill"), the revenue portion of President Clinton's budget
proposal, was introduced in the 104th Congress. The Revenue Reconciliation Bill
would have generally denied interest deductions for interest on an instrument,
issued by a corporation, that has a maximum term of more than 20 years and that
is not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that is
not shown as indebtedness on the issuer's consolidated balance sheet. The
above-described provision was proposed to be effective as to instruments issued
on or after December 7, 1995. If a similar provision were to apply to the Junior
Subordinated Debentures, the Corporation would have been unable to deduct
interest on the Junior Subordinated Debentures. However, on March 29, 1996, the
Chairmen of the Senate Finance and House Ways and Means Committees issued a
joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, would be no earlier
than the date of appropriate Congressional action. Under current law, the
Corporation will be able to deduct interest on the Junior Subordinated
Debentures. Although the 104th Congress adjourned without enacting the
above-described provisions of the Revenue Reconciliation Bill, there can be no
assurance that the current or future legislative proposals or final legislation
will not adversely affect the ability of the Corporation to deduct interest on
the Junior Subordinated Debentures. Accordingly, there can be no assurance that
a Tax Event will not occur. See "Description of New Securities -- Description of
Junior Subordinated Debentures -- Redemption" and "-- Description of Capital
Securities -- Redemption". See also "Certain Federal Income Tax Consequences --
Possible Tax Law Changes."
21
<PAGE> 22
KEYCORP
OVERVIEW
The Corporation was formed on March 1, 1994, when "old KeyCorp," a bank
holding company headquartered in Albany, New York, with approximately $33
billion in assets at December 31, 1993, merged into and with Society, a bank
holding company headquartered in Cleveland, Ohio, with approximately $27 billion
in assets at December 31, 1993. In the merger, Society, an Ohio corporation, was
the surviving corporation, but changed its name to KeyCorp. The merger was
accounted for as a pooling of interests. Accordingly, all financial data of the
Corporation set forth herein (or incorporated by reference) has been restated to
give effect to the merger of old KeyCorp into and with Society. At September 30,
1996, KeyCorp was one of the nation's largest bank holding companies, based upon
consolidated total assets of approximately $65.4 billion.
The Corporation is a legal entity separate and distinct from its banking
and other subsidiaries. Accordingly, the rights of the Corporation, its security
holders and its creditors to participate in any distribution of the assets or
earnings of its banking and other subsidiaries is necessarily subject to the
prior claims of the respective creditors of such banking and other subsidiaries,
except to the extent that claims of the Corporation in its capacity as a
creditor of such banking and other subsidiaries may be recognized. The principal
executive office of the Corporation is located at 127 Public Square, Cleveland,
Ohio 44144-1306, Attention: Office of the Secretary, and its telephone number is
(216) 689-6300.
SUBSIDIARIES
The Corporation provides a wide range of banking, fiduciary and other
financial services to its corporate, individual and institutional customers
through four primary lines of business: Corporate Banking, National Consumer
Finance (which includes Key Bank USA, National Association), Community Banking
and Key PrivateBank (Personal Financial Services). These services are provided
across much of the country through a network of banking subsidiaries operating
1,218 full-service banking centers, a 24-hour telephone banking call center
services group and approximately 1,732 automated teller machines in 13 states as
of September 30, 1996. The Corporation's largest banking subsidiaries include
KeyBank National Association, headquartered in Cleveland, Ohio, which is one of
the nation's major regional banks with $26.8 billion in total assets and 385
full-service banking offices in Indiana, Michigan and Ohio at September 30,
1996; KeyBank National Association (formerly Key Bank of New York),
headquartered in Albany, New York, with $15.1 billion in total assets and 317
full-service banking offices at September 30, 1996; and Key Bank of Washington,
headquartered in Tacoma, Washington, with $7.8 billion in total assets and 165
full-service banking offices at September 30, 1996. In addition, the Corporation
operates bank subsidiaries in Alaska, Colorado, Idaho, Maine, New Hampshire,
Oregon, Utah, Vermont and Wyoming, a private bank in Florida, and either a trust
company subsidiary or an office of a trust company subsidiary in each of the
aforementioned states except Vermont.
In addition to the customary banking services of accepting deposits and
making loans, the Corporation's bank and trust company subsidiaries provide
specialized services tailored to specific markets, including personal and
corporate trust services, personal financial services, customer access to mutual
funds, cash management services, investment banking services and international
banking services. Through its subsidiary banks, trust companies and registered
investment adviser subsidiaries, the Corporation provides investment management
services to institutional and individual clients, including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, and
high net worth individuals. Several of the Corporation's investment management
subsidiaries also serve as investment advisers to the Corporation's proprietary
mutual funds.
The Corporation also provides other financial services both in and outside
of its primary banking markets through its nonbank subsidiaries. These services
include accident and health insurance on loans made by subsidiary banks, venture
capital community development financing, securities underwriting and brokerage,
22
<PAGE> 23
automobile financing and other financial services. The Corporation is also an
equity participant in a joint venture with a number of other unaffiliated bank
holding companies in Electronic Payment Services, Inc.
RECENT DEVELOPMENTS
The Corporation announced on November 25, 1996 the following strategic
actions it has undertaken or will undertake in the next year to complete its
transformation to a nationwide, bank-based financial services company:
- Formation of a single nationwide bank from the Corporation's current
network of 12 banks in 14 states and four regions of the United
States. The new bank's business lines will emphasize community and
corporate banking products and services, and will complement the
delivery on a nationwide basis of consumer finance products through
Key Bank USA, National Association, which will remain as a separate
company.
- Consolidation of nearly 140 of its branch offices, known as
"KeyCenters," into other KeyCenters.
- Reduction of approximately 2,700 positions, or 10% of its employment
base.
As a consequence of these actions, the Corporation recorded a fourth
quarter 1996 restructuring charge of $100 million. The major components of this
charge are as follows:
<TABLE>
<S> <C>
Branch Consolidation $ 18 million
Separation Assistance 54 million
Technology Write-offs 28 million
------------
Total $100 million
</TABLE>
The technology write-offs reflect the Corporation's accelerated plans for
organizing as a single nationwide bank, versus the current 12-bank, four-region
banking group. Several minor systems are utilized exclusively to support a
multi-bank organization and would no longer be required.
On January 16, 1997, the Corporation reported 1996 fourth quarter earnings
of $151 million, or $.67 per common share, down from $207 million, or $.86 per
share, in the fourth quarter of 1995. Earnings in 1996 reflect the restructuring
charge (described above) of $100 million ($66 million after tax, or $.29 per
common share).
Including the restructuring charge and the Corporation's share of a
third-quarter government mandated assessment of $17 million ($11 million after
tax, or $.05 per common share) to recapitalize the Savings Association Insurance
Fund ("SAIF"), net income and earnings per common share for the full year in
1996 were $783 million and $3.37, respectively, compared with $825 million, or
$3.45 per common share in 1995.
Net interest income for the fourth quarter of 1996 totaled $683 million, up
$23 million or 3 percent, from the year-ago quarter. This increase reflected
substantial improvement in the net interest margin, which rose 27 basis points
to 4.80 percent, and more than offset the impact of a managed reduction of $1.6
billion, or 3 percent, in average earning assets.
Noninterest income for the 1996 fourth quarter totaled $285 million, down
$19 million, or 6 percent, from the year-ago quarter. Included in fourth quarter
1995 results was a positive $18 million adjustment for better-than-expected
performance of student loan securitizations completed in prior periods.
Excluding this adjustment, noninterest income in the fourth quarter was
consistent with the prior year level. Positive contributions from trust and
asset management income (up 8 percent), insurance and brokerage income and
service charges on deposit accounts (both up 6 percent) and other income (up 27
percent) were largely offset by decreases of $22 million in loan securitization
income (net of the adjustment) and $5 million in mortgage banking income.
Noninterest expense for the 1996 fourth quarter totaled $700 million, up
$78 million, or 13 percent, from the year-ago quarter. Excluding the impact of
the restructuring charge in the current quarter and $33 million
23
<PAGE> 24
of outdated technology write-offs and a sublease loss in the fourth quarter of
1995, noninterest expense showed a slight increase of $11 million, or 2 percent.
On November 25, 1996, the Corporation also announced: (a) its intention to
sell slightly more than 140 KeyCenters in primarily rural areas and (b) that its
Board of Directors authorized a new share buyback program, whereby up to 12
million common shares may be repurchased by the end of 1997. As of December 31,
1996, approximately 3 million common shares have been repurchased under this
program.
This section of this Prospectus contains forward looking statements. Actual
results could differ materially from such statements for a variety of factors
including: (1) delays in obtaining, or inability to obtain, necessary regulatory
approvals in connection with merging of banks or consolidation or sale of
branches or otherwise, (2) inability to enter into or delay in entering into
satisfactory sales transactions in connection with contemplated branch
divestitures, (3) significant customer losses in connection with branch
consolidations, (4) adverse revenue impact from employee reduction or
consolidation of branches, (5) unanticipated delays in implementing or inability
to achieve contemplated employee reduction, or (6) changes in laws, accounting,
tax or regulatory practices or requirements.
SUPERVISION AND REGULATION
GENERAL. As a bank holding company, the Corporation is subject to
regulation under the Bank Holding Company Act of 1956, as amended, and to its
examination and reporting requirements. For a discussion of certain of the
material elements of the regulatory framework applicable to bank holding
companies and their subsidiaries and certain specific information relevant to
the Corporation, reference is made to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1995. This regulatory framework is
intended primarily for the protection of depositors and the federal deposit
insurance funds and not for the protection of security holders. A change in
applicable statutes, regulations or regulatory policy may have a material effect
on the business of the Corporation.
The earnings of the Corporation also are affected by general economic
conditions, management policies and the legislative and governmental actions of
various regulatory authorities, including the Federal Reserve Board, the Office
of the Comptroller of the Currency, which is the principal regulator of the
Corporation's national bank subsidiaries, and the Federal Deposit Insurance
Corporation (the "FDIC"), which is the principal regulator of the Corporation's
state-chartered bank subsidiary. In addition, there are numerous governmental
requirements and regulations which affect the activities of the Corporation.
FDIC INSURANCE ASSESSMENTS; DIFA. The FDIC significantly reduced the
insurance premiums it charges on bank deposits insured by the Bank Insurance
Fund ("BIF") to the statutory minimum of $2,000.00 for "well capitalized" banks,
effective January 1, 1996. Premiums related to savings association deposits
acquired by banks continued to be assessed at the rate of 23 cents to 31 cents
per $100.00 of deposits. On September 30, 1996, the Deposit Insurance Funds Act
of 1996 ("DIFA") was enacted and signed into law. DIFA is expected to reduce the
amount of semi-annual FDIC insurance premiums for savings association deposits
acquired by banks to the same levels assessed for deposits insured by BIF. The
Corporation currently estimates such reductions in premiums may amount to
approximately $10 million pre-tax per year.
DIFA also provides for a special one-time assessment imposed on deposits
insured by the SAIF, including such deposits held by banks, to recapitalize the
SAIF to bring the SAIF up to statutory required levels. The Corporation accrued
for the one-time assessment in the third quarter of 1996 in the amount of $11
million after tax in connection with the SAIF recapitalization.
DIFA further provides for assessments to be imposed on insured depository
institutions with respect to deposits insured by the BIF (in addition to
assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of financing Corporation funding. The
Corporation currently estimates assessments may amount to up to $3 million
after-tax in 1997 with similar assessments per year through 1999 (or earlier if
no savings associations exist prior to December 31, 1999) in connection with
such funding.
24
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA OF KEYCORP
The following table presents summary consolidated financial data which has
been derived from, and should be read in conjunction with, the consolidated
financial statements, notes thereto and other information of the Corporation
found in the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1996. This summary is qualified in its entirety by the
detailed information and financial statements included in the KeyCorp documents
incorporated by reference herein, available as described under "Available
Information" and "Incorporation of Certain Documents by Reference". The data
presented for the nine-month periods ended September 30, 1996 and September 30,
1995 are not necessarily indicative of the data for the entire year and have
been derived from unaudited consolidated financial statements of the
Corporation. These financial statements include, in the opinion of management,
all adjustments of a normal recurring nature and disclosures which are necessary
to present fairly the data for such interim periods. The comparability of the
data presented is affected by certain acquisitions and divestitures that the
Corporation has completed in the time periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Interest income...................................... $ 3,708 $ 3,843 $ 5,121 $ 4,490 $ 4,214 $ 4,199 $ 4,652
Interest expense..................................... 1,674 1,867 2,485 1,797 1,535 1,750 2,519
Net interest income.................................. 2,034 1,976 2,636 2,693 2,679 2,449 2,133
Provision for loan losses............................ 140 66 100 125 212 338 466
Noninterest income................................... 802 629 933 883 1,002 925 849
Noninterest expense.................................. 1,764 1,190 2,312 2,168 2,385 2,171 2,066
Income before income taxes and extraordinary item.... 932 849 1,157 1,283 1,084 865 450
Income before extraordinary item..................... 632 582 789 853 710 593 314
Net income........................................... 632 618 825 853 710 593 314
Net income applicable to Common Shares............... 624 606 809 837 692 568 298
PER COMMON SHARE
Income before extraordinary item..................... $ 2.70 $ 2.44 $ 3.30 $ 3.45 $ 2.89 $ 2.42 $ 1.31
Net income........................................... 2.70 2.59 3.45 3.45 2.89 2.42 1.31
Cash dividends....................................... 1.14 1.08 1.44 1.28 1.12 .98 .92
Book value at period end............................. 21.91 20.74 21.36 18.88 17.53 15.64 14.10
Weighted average Common Shares (000)................. 231,363 234,462 234,787 243,067 239,775 235,005 227,116
AT PERIOD END
Loans................................................ $48,291 $48,410 $47,692 $46,225 $40,071 $36,022 $35,534
Earning assets....................................... 57,640 60,847 58,762 60,047 54,353 49,381 48,208
Total assets......................................... 65,356 67,967 66,339 66,801 59,634 55,068 53,601
Deposits............................................. 44,523 47,905 47,282 48,564 46,499 43,433 42,835
Long-term debt....................................... 4,664 4,048 4,003 3,570 1,764 1,790 1,225
Common shareholders' equity.......................... 4,976 4,923 4,993 4,530 4,226 3,683 3,272
Total shareholders' equity........................... 4,976 5,083 5,153 4,690 4,386 3,927 3,516
PERFORMANCE RATIOS
Return on average total assets(1).................... 1.30% 1.24% 1.24% 1.36% 1.24% 1.13% .60%
Return on average common equity(1)................... 16.76 17.72 17.35 18.87 17.27 16.33 9.29
Return on average total equity(1).................... 16.62 17.46 17.10 18.56 16.95 15.91 9.31
Efficiency(2)........................................ 60.81 62.79 63.03 59.39 60.50 60.96 65.27
Overhead(3).......................................... 45.66 50.43 49.66 46.14 46.85 47.21 52.63
Net interest margin(1)(TE)........................... 4.78 4.46 4.47 4.83 5.31 5.31 4.71
CAPITAL RATIOS AT PERIOD END
Equity to assets..................................... 7.61% 7.48% 7.77% 7.03% 7.37% 7.13% 6.56%
Tangible equity to tangible assets................... 6.20 5.98 6.25 6.19 6.51 6.11 5.45
Tier I risk-adjusted capital(4)...................... 7.49 7.55 7.53 8.48 8.73 8.56 7.67
Total risk-adjusted capital(5)....................... 12.50 10.84 10.85 11.62 12.22 11.73 9.80
Leverage(6).......................................... 6.38 6.19 6.20 6.63 6.72 6.56 5.97
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET QUALITY DATA
Nonperforming loans.................................. $ 344 $ 313 $ 333 $ 256 $ 336 $ 553 $ 730
Nonperforming assets................................. 396 367 379 340 500 900 1,072
Allowance for loan losses............................ 870 879 876 830 803 783 794
Net loan charge-offs................................. 138 65 99 109 213 361 392
Nonperforming loans to period-end loans.............. .71% .65% .70% .55% .84% 1.53% 2.05%
Nonperforming assets to period-end loans plus OREO
and other nonperforming assets .................... .82 .76 .79 .73 1.24 2.47 2.99
Allowance for loan losses to nonperforming loans..... 252.91 280.53 263.15 324.27 238.69 141.54 108.79
Allowance for loan losses to period-end loans ....... 1.80 1.82 1.84 1.80 2.00 2.17 2.23
Net loan charge-offs to average loans(1)............. .38 .18 .21 .26 .56 1.02 1.11
RATIO OF EARNINGS TO FIXED CHARGES(7)
Excluding deposit interest........................... 2.58x 2.40x 2.42x 3.50x 4.15x 3.67x 2.07x
Including deposit interest........................... 1.55x 1.45x 1.46x 1.70x 1.69x 1.48x 1.18x
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS(7)
Excluding deposit interest........................... 2.53x 2.33x 2.35x 3.34x 3.84x 3.31x 1.96x
Including deposit interest........................... 1.54x 1.43x 1.45x 1.68x 1.66x 1.45x 1.17x
<FN>
- ---------------
(1) Annualized.
(2) Calculated as noninterest expense (excluding merger and integration charges
and certain other nonrecurring charges) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities gains
(losses) and gains on certain asset sales).
(3) Calculated as noninterest expense (excluding merger and integration charges
and certain other nonrecurring charges) less noninterest income (excluding
net securities gains (losses) and gains on certain asset sales) divided by
taxable-equivalent net interest income.
(4) The Corporation's Tier I capital consists of common shareholders' equity
(excluding net unrealized gains or losses on securities, except for net
unrealized losses on marketable equity securities) and a limited amount of
qualifying perpetual preferred stock, less certain intangibles.
(5) The Corporation's total capital consists of Tier I capital and subordinated
debt, qualifying preferred stock and a limited amount of the loan loss
allowance. At least half of a bank holding company's total capital is to be
comprised of Tier I capital.
(6) The leverage ratio is defined as the ratio of Tier I capital to average
quarterly assets, less certain intangibles. Federal Reserve Board guidelines
provide for a minimum leverage ratio of 3% for bank holding companies that
meet certain specified criteria, including that they have the highest
regulatory rating. All other bank holding companies will be required to
maintain a leverage ratio of 3% plus an additional cushion of at least 100
to 200 basis points. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
(7) Earnings represent consolidated income before income taxes and extraordinary
item plus fixed charges. Fixed charges include consolidated interest expense
(excluding or including interest on deposits, as the case may be) and the
proportion deemed representative of the interest factor of rental expense,
net of income from subleases.
TE = Taxable Equivalent
</TABLE>
26
<PAGE> 27
KEYCORP INSTITUTIONAL CAPITAL B
The Issuer is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement between the Corporation, as Depositor, and
Bankers Trust (Delaware), as Delaware Trustee, and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on December 18, 1996.
The Issuer's business and affairs are conducted by its trustees: initially
Bankers Trust Company, as Property Trustee, and Bankers Trust (Delaware), as
Delaware Trustee. In addition, two individuals who are employees or officers of
or affiliated with the holder of the Common Securities act as administrators
with respect to the Issuer (the "Administrators"). The Administrators are
selected by the holders of the Common Securities. See "Description of New
Securities -- Description of Capital Securities -- Miscellaneous." The Issuer
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of Trust Securities to acquire
the Junior Subordinated Debentures and (iii) engaging in those activities
necessary or incidental thereto (such as effecting the Exchange Offer and
registering the transfer of the Trust Securities). Accordingly, the New Junior
Subordinated Debentures will be the sole assets of the Issuer, and payments
under the New Junior Subordinated Debentures and the Expense Agreement will be
the sole sources of revenue of the Issuer.
All of the Common Securities will be initially owned by the Corporation.
The Common Securities will rank pari passu, and payments will be made thereon
pro rata, with the Capital Securities, except that upon the occurrence and
continuance of an event of default under the Trust Agreement arising as a result
of any failure by the Corporation to pay any amounts in respect of Junior
Subordinated Debentures when due, the rights of the holders of the Common
Securities to payment in respect of Distributions and payments upon liquidation,
redemption or otherwise will be subordinated to the rights of the holders of the
Capital Securities. See "Description of New Securities -- Description of Capital
Securities -- Subordination of Common Securities." The Corporation owns Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of the Issuer. The Issuer has a term of 31 years, but may terminate earlier as
provided in the Trust Agreement. The holder of the Common Securities of the
Issuer, or the holders of a majority in Liquidation Amount of the Capital
Securities, if an Event of Default under the Trust Agreement has occurred and is
continuing, will be entitled to appoint, remove or replace the Property Trustee
and/or the Delaware Trustee. In no event will the holders of the Capital
Securities have the right to vote to appoint, remove or replace the
Administrators. The duties and obligations of each Issuer Trustee are governed
by the Trust Agreement. Pursuant to the Expense Agreement and the Registration
Rights Agreement, the Corporation will pay all fees and expenses related to the
Issuer, the offering of the Capital Securities and the Exchange Offer and will
pay, directly or indirectly, all ongoing costs, expenses and liabilities of the
Issuer. The principal executive office of the Issuer is 127 Public Square,
Cleveland, Ohio 44144-1306, Attention: Office of the Secretary, and its
telephone number is (216) 689-6300.
USE OF PROCEEDS
Neither the Corporation nor the Issuer will receive any cash proceeds from
the issuance of the New Capital Securities offered hereby. In consideration for
issuing the New Capital Securities in exchange for Old Capital Securities as
described in this Prospectus, the Issuer will receive Old Capital Securities in
like Liquidation Amount. The Old Capital Securities surrendered in exchange for
the New Capital Securities will be retired and cancelled.
The net proceeds to the Issuer from the offering of the Old Capital
Securities was approximately $150 million (before deducting expenses associated
with the offering). All of the proceeds from the sale of the Old Capital
Securities were invested by the Issuer in the Old Junior Subordinated
Debentures. The Corporation intends that the net proceeds from the sale of the
Old Junior Subordinated Debentures will be added to its general corporate funds
and will be used for general corporate purposes. Pending such application by the
Corporation, such net proceeds may be temporarily invested in short-term
interest bearing securities. The Capital Securities are currently eligible to
qualify as Tier I capital under the capital guidelines of the Federal Reserve.
27
<PAGE> 28
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation and its subsidiaries as of September 30, 1996 and as adjusted to
give effect to the consummation of the issuance of the Old Capital Securities
and the issuance of the 7.826% Capital Securities due 2026 by KeyCorp
Institutional Capital A on December 4, 1996. The following data should be read
in conjunction with the consolidated financial statements of the Corporation and
its subsidiaries, including the notes thereto, which are incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." The issuance
of New Capital Securities in the Exchange Offer will have no effect on the
capitalization of KeyCorp.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
OUTSTANDING AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LONG-TERM DEBT
KeyCorp
Senior medium-term notes due through 2005(1)......... $ 924 $ 924
Subordinated medium-term notes due through 2005(2)... 183 183
7.50% Subordinated notes due 2006.................... 250 250
6.75% Subordinated notes due 2006.................... 200 200
8.125% Subordinated notes due 2002................... 199 199
8.00% Subordinated notes due 2004.................... 125 125
8.40% Subordinated notes due 1999.................... 75 75
8.404% Notes due 1997 through 2001................... 49 49
All other long-term debt............................. 18 18
------ -------
Total KeyCorp................................. 2,023 2,023
Subsidiaries
Senior medium-term notes due through 1998(3)......... 1,275 1,275
7.25% Subordinated notes due 2005.................... 200 200
7.85% Subordinated notes due 2002.................... 200 200
6.75% Subordinated notes due 2003.................... 199 199
7.50% Subordinated notes due 2008.................... 165 165
7.125% Subordinated notes due 2006................... 125 125
7.125% Subordinated notes due 2006................... 125 125
7.55% Subordinated notes due 2006.................... 75 75
7.375% Subordinated notes due 2008................... 70 70
Federal Home Loan Bank Advances...................... 193 193
Industrial revenue bonds............................. 10 10
All other long-term debt............................. 4 4
------ -------
Total subsidiaries............................ 2,641 2,641
------ -------
Total long-term debt.......................... 4,664 4,664
CORPORATION-OBLIGATED MANADATORY REDEEMABLE CAPITAL
SECURITIES OF TRUST SUBSIDIARIES HOLDING SOLELY
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF
THE CORPORATION
7.826% Capital securities due 2026(4)......... -- 350
8.25% Capital securities due 2026(5).......... -- 150
------ -------
Total capital securities...................... -- 500
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; authorized 25,000,000
shares, none issued................................ -- --
Common Shares, $1 par value; authorized 900,000,000
shares; issued 245,944,390 shares.................. 246 246
Capital surplus...................................... 1,488 1,488
Retained earnings.................................... 3,994 3,994
Loans to ESOP trustee................................ (49) (49)
Net unrealized losses on securities, net of taxes.... (37) (37)
Treasury stock, at cost (18,882,718 shares).......... (666) (666)
------ -------
Total shareholders' equity.................... 4,976 4,976
------ -------
Total capitalization.......................... $9,640 $10,140
====== =======
</TABLE>
- ---------------
(1) The weighted average rate on the senior medium-term notes due through 2005
was 6.50%.
(2) The weighted average rate on the subordinated medium-term notes due through
2005 was 6.81%.
(3) The weighted average rate on the senior medium-term notes due through 1998
was 6.68%.
28
<PAGE> 29
(4) On December 4, 1996, KeyCorp Institutional Capital A, a subsidiary trust of
the Corporation, issued $350,000,000 of capital securities that mature on
December 1, 2026. Such capital securities have terms substantially identical
to the Old Capital Securities and accumulate Distributions at a per annum
rate of 7.826% of the liquidation amount of $1,000 per capital security.
(5) On December 30, 1996, the Issuer issued $150,000,000 of Old Capital
Securities that mature on December 15, 2026. The Old Capital Securities
accumulate Distributions at a rate per annum of 8.25% of the liquidation
amount of $1,000 per capital security. As described herein, the sole assets
of the Issuer are $154,640,000 aggregate principal amount of Junior
Subordinated Debentures, issued by the Corporation to the Issuer. The Junior
Subordinated Debentures will mature on December 15, 2026. The Corporation
owns all of the Common Securities of the Issuer. It is anticipated that the
Issuer will not be subject to the reporting requirements under the
Securities Exchange Act of 1934.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Issuer will
be included in the consolidated financial statements of the Corporation. The
Capital Securities will be presented as a separate line item in the consolidated
balance sheets of the Corporation, entitled "Corporation-obligated mandatory
redeemable capital securities of trust subsidiaries holding solely junior
subordinated deferrable interest debentures of the Corporation" and appropriate
disclosures about the Capital Securities, the Guarantee and the Junior
Subordinated Debentures will be included in the notes to the consolidated
financial statements. For financial reporting purposes, the Corporation will
record Distributions payable on the Capital Securities as an expense in the
consolidated statements of income.
29
<PAGE> 30
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Corporation
and the Issuer entered into the Registration Rights Agreement with the Initial
Purchaser, pursuant to which the Corporation and the Issuer agreed to file and
to use their reasonable best efforts to cause to become effective with the
Commission a registration statement with respect to the exchange of the Old
Capital Securities for capital securities with terms identical in all material
respects to the terms of the Old Capital Securities.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Issuer under the Registration Rights Agreement. The form
and terms of the New Capital Securities are the same as the form and terms of
the Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Capital Securities and will not
provide for any increase in the Distribution rate thereon. Upon consummation of
the Exchange Offer, holders of Old Capital Securities will not be entitled to
any increase in the Distribution rate thereon or any further registration rights
under the Registration Rights Agreement, except under limited circumstances. See
"Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities"
and "Description of the Old Securities."
The Exchange Offer is not being made to, nor will the Issuer or the
Corporation accept tenders for exchange from, holders of Old Capital Securities
in any jurisdiction in which the Exchange Offer or the acceptance thereof would
not be in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Issuer or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Capital Securities are held of record by DTC who desires to deliver such Old
Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
all of the Old Junior Subordinated Debentures, of which $154,640,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of the
New Junior Subordinated Debentures. The New Guarantee and New Junior
Subordinated Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE
The Issuer hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $150,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date (as defined below) and not
properly withdrawn in accordance with the procedures described below. The Issuer
will issue, promptly after the Expiration Date, an aggregate Liquidation Amount
of up to $150,000,000 of New Capital Securities in exchange for a like aggregate
Liquidation Amount of outstanding Old Capital Securities tendered and accepted
in connection with the Exchange Offer. Holders may tender their Old Capital
Securities in whole or in part in a Liquidation Amount of not less than $100,000
or any integral multiple of $1,000 in excess thereof provided that if any Old
Capital Securities are tendered in exchange in part, the untendered Liquidation
Amount must be $100,000 or any integral multiple of $1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered, except as set forth in the preceding
paragraph. As of the date of this Prospectus, $150,000,000 aggregate Liquidation
Amount of the Old Capital Securities is outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Trust
30
<PAGE> 31
Agreement, but will not be entitled to any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "-- Fees and
Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE CORPORATION NOR ANY ADMINISTRATOR OR
ANY TRUSTEE OF THE ISSUER MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on March 5,
1997 unless the Exchange Offer is extended by the Issuer and the Corporation (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Issuer and the Corporation expressly reserve the right in their sole
and absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Capital Securities for exchange,
(ii) to terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Issuer and the Corporation
determine, in their sole and absolute discretion, that any of the events or
conditions referred to under "-- Conditions to the Exchange Offer" have occurred
or exist or have not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Old Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Capital
Securities to withdraw their tendered Old Capital Securities as described under
"-- Withdrawal Rights," and (iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. If the Exchange Offer is amended in
a manner determined by the Issuer and the Corporation to constitute a material
change, or if the Issuer and the Corporation waive a material condition of the
Exchange Offer, the Issuer and the Corporation will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Capital Securities, and the Issuer and the
Corporation will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Issuer and the Corporation may choose to make any public
announcement and subject to applicable law, the Issuer and the Corporation shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
31
<PAGE> 32
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
(pursuant to the withdrawal rights described under "-- Withdrawal Rights")
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, (ii) the Letter of
Transmittal (or facsimile thereof), or an Agent's Message (as defined below) in
lieu thereof, properly completed and duly executed, with any required signature
guarantees, and (iii) any other documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC.
Subject to the terms and conditions of the Exchange Offer, the Issuer and
the Corporation will be deemed to have accepted for exchange, and thereby
exchanged, Old Capital Securities validly tendered and not withdrawn as, if and
when the Issuer gives oral or written notice to the Exchange Agent of the
Issuer's acceptance of such Old Capital Securities for exchange pursuant to the
Exchange Offer. The Exchange Agent will act as agent for the Issuer and the
Corporation for the purpose of receiving tenders of Old Capital Securities,
Letters of Transmittal and related documents, and as agent for tendering holders
for the purpose of receiving Old Capital Securities, Letters of Transmittal and
related documents and transmitting New Capital Securities to validly tendering
holders. Such exchange will be made promptly after the Expiration Date. If for
any reason whatsoever, acceptance for exchange or the exchange of any Old
Capital Securities tendered pursuant to the Exchange Offer is delayed (whether
before or after the Issuer's and the Corporation's acceptance for exchange of
Old Capital Securities) or the Issuer and the Corporation extend the Exchange
Offer or are unable to accept for exchange or exchange Old Capital Securities
tendered pursuant to the Exchange Offer, then, without prejudice to the Issuer's
and the Corporation's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Issuer and the Corporation and subject to Rule
14e-l(c) under the Exchange Act, retain tendered Old Capital Securities and such
Old Capital Securities may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under "-- Withdrawal
Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Old Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Capital Securities, that the Issuer will acquire good,
marketable and unencumbered title to the tendered Old Capital Securities, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Capital Securities tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Corporation, the
Issuer or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment, and transfer of the Old Capital Securities tendered
pursuant to the Exchange Offer and will comply with its obligations under the
Registration Rights Agreement.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
Valid Tender. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) or an
Agent's Message, with any required signature guarantees and any other required
documents, must be received by the Exchange Agent at one of its addresses set
forth under "-- Exchange Agent," and either (i) tendered Old Capital Securities
must be received by the Exchange Agent, or (ii) such Old Capital Securities must
be tendered pursuant to the procedures for book-entry transfer set forth below
and a book-entry confirmation, including an Agent's Message if the tendering
holder has not delivered a Letter of Transmittal, must be received by the
Exchange Agent, in each case on or prior to the Expiration Date, or (iii) the
guaranteed delivery procedures set forth below must be complied with.
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<PAGE> 33
The term "Agent's Message" means a message, transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgement from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and the
Corporation may enforce the Letter of Transmittal against such participant.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Old Capital
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book Entry Transfer. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Old Capital Securities by causing DTC to
transfer such Old Capital Securities into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Old Capital Securities may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), or an Agent's Message, properly completed and duly executed, with any
required signature guarantees and any other required documents, must in any case
be delivered to and received by the Exchange Agent at its address set forth
under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT
Signature Guarantees. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for Old Capital Securities
must be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (an "Eligible Institution"), unless surrendered
on behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or before the Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
33
<PAGE> 34
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
or an Agent's Message, is received by the Exchange Agent, as provided
below, on or prior to Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), or an Agent's Message, with any required signature guarantees and
any other documents required by the Letter of Transmittal, are received by
the Exchange Agent within three New York Stock Exchange trading days after
the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), or an Agent's Message, together with any required signature guarantees
and any other documents required by the Letter of Transmittal. Accordingly, the
delivery of New Capital Securities might not be made to all tendering holders at
the same time, and will depend upon when Old Capital Securities, book-entry
confirmations with respect to Old Capital Securities and other required
documents are received by the Exchange Agent.
The Issuer's and the Corporation's acceptance for exchange of Old Capital
Securities tendered pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder, the Corporation and
the Issuer upon the terms and subject to the conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Corporation and
the Issuer, in their sole discretion, which determination shall be final and
binding on all parties. The Corporation and the Issuer reserve the absolute
right, in their sole discretion, to reject any and all tenders determined by
them not to be in proper form or the acceptance of which, or exchange for, may,
in the view of counsel to the Corporation or the Issuer, be unlawful. The
Corporation and the Issuer also reserve the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "-- Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Capital Securities of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders.
The Corporation's and the Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. The Corporation, the
Issuer, any affiliates or assigns of the Corporation or the Issuer, the Exchange
Agent or any other person shall not be under any duty to give any notification
of any irregularities in tenders or incur any liability for failure to give any
such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the
Corporation and the Issuer, proper evidence satisfactory to the Corporation and
the Issuer, in their sole discretion, of such person's authority to so act must
be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
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<PAGE> 35
RESALES OF NEW CAPITAL SECURITIES
The Corporation and the Issuer are making the Exchange Offer for the
Capital Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, neither the
Corporation nor the Issuer sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Corporation and the Issuer
believe that New Capital Securities issued pursuant to this Exchange Offer in
exchange for Old Capital Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. However, any holder of Old
Capital Securities who is an "affiliate" of the Corporation or the Issuer or who
intends to participate in the Exchange Offer for the purpose of distributing New
Capital Securities, or any broker-dealer who purchased Old Capital Securities
from the Issuer to resell pursuant to Rule 144A or any other available exemption
under the Securities Act, (a) will not be able to rely on the interpretations of
the staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or entitled
to tender such Old Capital Securities in the Exchange Offer and (c) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, Participating Broker-Dealers must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of the Corporation or the Issuer,
(ii) any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. The Letter of Transmittal contains the foregoing representations. In
addition, the Corporation and the Issuer may require such holder, as a condition
to such holder's eligibility to participate in the Exchange Offer, to furnish to
the Corporation and the Issuer (or an agent thereof) in writing information as
to the number of "beneficial owners" (within the meaning of Rule 13d-3 under the
Exchange Act) on behalf of whom such holder holds the Old Capital Securities to
be exchanged in the Exchange Offer. Each Participating Broker-Dealer will be
deemed to have acknowledged by execution of the Letter of Transmittal or
delivery of an Agent's Message that it acquired the Old Capital Securities for
its own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Capital Securities. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the Corporation
and the Issuer believe that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the New Capital Securities
received upon exchange of such Old Capital Securities (other than Old Capital
Securities which represent an unsold allotment from the original sale of the Old
Capital Securities) with a prospectus meeting the requirements of the Securities
Act, which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital
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<PAGE> 36
Securities were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Corporation and
the Issuer have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Capital Securities for a period ending 180
days after the Expiration Date or, if earlier, when all such New Capital
Securities have been disposed of by such Participating Broker-Dealer. See "Plan
of Distribution." Any person, including any Participating Broker-Dealer, who is
an "affiliate" of the Corporation or the Issuer may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal, that, upon receipt of notice
from the Corporation or the Issuer of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or which causes
this Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading or of the occurrence
of certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of New Capital Securities (or
the Guarantee or the Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Corporation or the Issuer has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Corporation or the Issuer has given notice that the sale
of the New Capital Securities (or the Guarantee or the Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Capital Securities to be withdrawn,
the aggregate Liquidation Amount of Old Capital Securities to be withdrawn, and
(if certificates for such Old Capital Securities have been tendered) the name of
the registered holder of the Old Capital Securities as set forth on the Old
Capital Securities, if different from that of the person who tendered such Old
Capital Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the serial numbers shown on
the particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering Old
Capital Securities", the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Capital Securities may not be rescinded. Old
Capital Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described
above under "-- Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Corporation and
the Issuer, in their sole discretion, which determination shall be final and
binding on all parties. Neither the Corporation, the Issuer, any affiliates or
assigns of the Corporation or the Issuer, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification. Any Old
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<PAGE> 37
Capital Securities which have been tendered but which are withdrawn will be
returned to the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON THE NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from and after the last Distribution Date with respect
to such Old Capital Securities prior to the original issue date of the New
Capital Securities or, if no such Distributions have been made, will not receive
any accumulated Distributions on such Old Capital Securities, and will be deemed
to have waived the right to receive any Distributions on such Old Capital
Securities accumulated from and after such Distribution Date or, if no such
Distributions have been made, from and after December 30, 1996.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Issuer and the Corporation will not be
required to accept for exchange, or to exchange, any Old Capital Securities for
any New Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Old Capital Securities have theretofore been accepted
for exchange) or may waive any conditions to or amend the Exchange Offer, if any
of the following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an "affiliate" of
the Corporation or the Issuer within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such New Capital
Securities are acquired in the ordinary course of such holders' business
and such holders have no arrangement or understanding with any person to
participate in the distribution of such New Capital Securities; or
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Issuer's or the Corporation's judgment,
would reasonably be expected to impair the ability of the Issuer or the
Corporation to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted,
enacted or proposed which, in the Issuer's or the Corporation's judgment,
would reasonably be expected to impair the ability of the Issuer or the
Corporation to proceed with the Exchange Offer or might otherwise adversely
affect the business or financial affairs of the Corporation;
(d) a banking moratorium shall have been declared by United States
federal or Ohio or New York State authorities which, in the Corporation's
judgment, would reasonably be expected to impair the ability of the
Corporation to proceed with the Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Issuer's or
the Corporation's judgment, would reasonably be expected to impair the
ability of the Issuer or the Corporation to proceed with the Exchange
Offer;
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Corporation or the Issuer, threatened for that purpose any governmental
approval has not been obtained, which approval the Issuer or the
Corporation shall, in their sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
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<PAGE> 38
(g) any change, or any development involving a prospective change, in
the business or financial affairs of the Issuer or the Corporation or any
of the Corporation's subsidiaries has occurred which, in the sole judgment
of the Issuer or the Corporation, might impair the ability of the Issuer or
the Corporation to proceed with the Exchange Offer or might adversely
affect the business or financial affairs of the Corporation.
If the Issuer or the Corporation determine in their sole discretion that
any of the foregoing events or conditions has occurred or exists or has not been
satisfied, the Issuer or the Corporation may, subject to applicable law,
terminate the Exchange Offer (whether or not any Old Capital Securities have
theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the Issuer or
the Corporation will promptly disclose such waiver by means of an amended or
supplemented Prospectus that will be distributed to the registered holders of
the Old Capital Securities, and the Issuer and the Corporation will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
Bankers Trust Company has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Mail or Courier:
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust and Agency Group Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, TN 37229-2737 123 Washington St., 1st Floor 648 Grassmere Park Road
New York, NY 10006 Nashville, TN 37211
Telephone: (800) 735-7777
Facsimile: (615) 835-3701
</TABLE>
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Capital Securities, and in
handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither the Corporation nor the Issuer will make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer.
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<PAGE> 39
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trustees have
issued the Old Capital Securities and the Common Securities and will issue the
New Capital Securities. The New Capital Securities will represent preferred
undivided beneficial interests in the assets of the Issuer and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on redemption of the Trust Securities or
liquidation of the Issuer over the Common Securities. See "-- Subordination of
Common Securities." The Trust Agreement has been qualified under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). This summary of
certain provisions of the Capital Securities, the Common Securities and the
Trust Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms.
General
- -------
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) will be limited to $150,000,000 aggregate Liquidation Amount
at any one time outstanding. The Capital Securities will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities except as
described under "-- Subordination of Common Securities." The New Capital
Securities and any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer will constitute a single series of Capital
Securities under the Trust Agreement and, accordingly, will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Trust Agreement.
Legal title to the Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the Capital
Securities and the holder of the Common Securities (i.e., the Corporation). The
Guarantee executed by the Corporation for the benefit of the holders of the
Capital Securities will be a guarantee on a subordinated basis but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Capital Securities when the Issuer does not have funds on
hand available to make such payments. See "-- Description of Guarantee."
Distributions
- -------------
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer, and each Capital Security is entitled to a
preference in Distributions payable at the annual rate of 8.25% of the stated
Liquidation Amount of $1,000, payable semi-annually in arrears on June 15 and
December 15 of each year (each a "Distribution Date"), to the holders of the
Capital Securities at the close of business on the June 1 or December 1, as the
case may be, next preceding the relevant Distribution Date. Distributions on the
Capital Securities will be cumulative. Distributions will accumulate from the
date of initial issuance. The first Distribution Date for the Capital Securities
will be June 15, 1997. The amount of Distributions payable for any period less
than a full Distribution period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by two. If any date on which Distributions are
payable on the Capital Securities is not a Business Day (as defined below), then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (without any additional Distributions or
other payment in respect of any such delay), with the same force and effect as
if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 10 consecutive semi-annual periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such election, semi-annual Distributions on the Capital Securities will be
deferred by the Issuer during any such Extension Period. Distributions to which
holders of
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<PAGE> 40
the Capital Securities are entitled will accumulate additional Distributions
thereon at the rate per annum of 8.25% thereof, compounded semi-annually from
the relevant payment date for such Distributions, computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. Additional Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by two. The
term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Corporation may not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Corporation's capital
stock or (ii) make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Corporation
(including other junior subordinated debentures) that rank pari passu in all
respects with or junior in interest to the Junior Subordinated Debentures or
make any guarantee payments with respect to any guarantee by the Corporation of
the debt securities of any subsidiary of the Corporation if such guarantee ranks
pari passu in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Corporation in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or shareholder stock purchase plan or in connection
with the issuance of capital stock of the Corporation (or securities convertible
into or exercisable for such stock) as consideration in an acquisition
transaction entered into prior to the Extension Period, (b) as a result of an
exchange or conversion of any class or series of the Corporation's capital stock
for any other class or series of the Corporation's capital stock or of any class
or series of the Corporation's indebtedness for any class or series of the
Corporation's capital stock, (c) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with the implementation or
amendment of the Corporation's shareholders' rights plan (or any successor
thereto), or the issuance of rights, stock or other property under any such
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Corporation may further defer the payment of
interest, provided that no Extension Period may exceed 10 consecutive
semi-annual periods or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Corporation may elect to begin a new
Extension Period. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period. See "-- Description of
Junior Subordinated Debentures -- Option To Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer will invest the proceeds from the issuance and
sale of the Capital Securities. See "-- Description of Junior Subordinated
Debentures." If the Corporation does not make interest payments on the Junior
Subordinated Debentures, the Issuer may not have funds available to pay
Distributions or other amounts owing in respect of the Capital Securities. The
payment of Distributions (if and to the extent the Issuer has funds legally
available for the payment of such Distributions and cash sufficient to make such
payments) is guaranteed by the Corporation on a limited basis as set forth
herein under "-- Description of Guarantee."
Redemption
- ----------
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Indenture, the proceeds from such repayment or redemption shall
be applied by the Property Trustee to redeem a Like Amount (as defined below) of
the Capital Securities, upon not less than 30 nor more than 60 days' notice, at
a redemption price (the
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<PAGE> 41
"Redemption Price") equal to the aggregate Liquidation Amount of such Capital
Securities plus accumulated but unpaid Distributions thereon to the date of
redemption (the "Redemption Date") and the related amount of the premium, if
any, paid by the Corporation upon the concurrent redemption of such Junior
Subordinated Debentures. See "--Description of Junior Subordinated
Debentures--Redemption." If less than all of the Junior Subordinated Debentures
are to be repaid or redeemed on a Redemption Date, then the proceeds from such
repayment or redemption shall be allocated to the redemption pro rata of the
Capital Securities and the Common Securities. The amount of premium, if any,
paid by the Corporation upon the redemption of all or any part of the Junior
Subordinated Debentures to be repaid or redeemed on a Redemption Date shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities.
The Corporation has the right to redeem the Junior Subordinated Debentures,
(i) on or after December 15, 2006, in whole at any time or in part from time to
time, or (ii) in whole (but not in part) at any time within 90 days following
the occurrence and during the continuation of a Tax Event or Capital Treatment
Event (each as defined below). See "--Description of Junior Subordinated
Debentures--Redemption." A redemption of the Junior Subordinated Debentures
would cause a mandatory redemption of a Like Amount of the Capital Securities
and Common Securities. The Corporation has committed to the Reserve Bank that it
will not exercise such redemption rights without having received the prior
approval of the Federal Reserve to do so, if then so required under applicable
Federal Reserve capital guidelines or policies.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices, expressed in percentages of the Liquidation Amount
(as defined below), together with accumulated Distributions to but excluding the
date fixed for redemption, if redeemed during the 12-month period beginning
December 15:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------ ----------
<S> <C>
2006.......................... 104.1250%
2007.......................... 103.7125
2008.......................... 103.3000
2009.......................... 102.8875
2010.......................... 102.4750
2011.......................... 102.0625
2012.......................... 101.6500
2013.......................... 101.2375
2014.......................... 100.8250
2015.......................... 100.4125
</TABLE>
and at 100% on or after December 15, 2016.
The Redemption Price following a Tax Event or Capital Treatment Event as
described under (ii) above, will equal for each Capital Security the Make-Whole
Amount for a corresponding $1,000 principal amount of Junior Subordinated
Debentures together with accumulated Distributions to but excluding the date
fixed for redemption. The "Make-Whole Amount" will be equal to the greater of
(i) 100% of the principal amount of such Junior Subordinated Debentures or (ii)
as determined by a Quotation Agent (as defined below), the sum of the present
values of the principal amount and premium payable as part of the Redemption
Price with respect to an optional redemption of such Junior Subordinated
Debentures on December 15, 2006, together with the present values of scheduled
payments of interest from the Redemption Date to December 15, 2006 (the
"Remaining Life"), in each case discounted to the Redemption Date on a
semi-annual basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) 1.25% if such Redemption Date occurs on or before
December 15, 1997 or (ii) 0.50% if such Redemption Date occurs after December
15, 1997.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed, or
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<PAGE> 42
(c) a day on which the Property Trustee's Corporate Trust Office or the
Corporate Trust Office of the Debenture Trustee is closed for business.
"Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities under the Trust Agreement, there is more than an insubstantial risk
that the Corporation will not be entitled to treat an amount equal to the
Liquidation Amount of the Capital Securities as "Tier I Capital" (or the then
equivalent thereof) for purposes of the applicable Federal Reserve capital
adequacy guidelines, as then in effect.
"Comparable Treasury Issue" means with respect to any Redemption Date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after December 15, 2006, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Debenture
Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and (ii) with respect to a distribution of
Junior Subordinated Debentures to holders of Trust Securities in connection with
a dissolution or liquidation of the Issuer, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Quotation Agent" means Credit Suisse First Boston Corporation and its
successors; provided, however, that if the foregoing shall cease to be a primary
United States Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Corporation shall substitute therefor another Primary Treasury
Dealer.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any
other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Corporation.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.
"Tax Event" means the receipt by the Issuer of an opinion of counsel to the
Corporation experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision
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<PAGE> 43
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities under the Trust Agreement, there is more
than an insubstantial risk that (i) the Issuer is, or will be within 90 days of
the date of delivery of such opinion, subject to United States federal income
tax with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Corporation on the Junior Subordinated
Debentures is not, or within 90 days of the date of such opinion, will not be,
deductible by the Corporation, in whole or in part, for United States federal
income tax purposes or (iii) the Issuer is, or will be within 90 days of the
date of delivery of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the week immediately prior to the date of calculation, appearing in
the most recently published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
Payment of Additional Sums. If a Tax Event described in clause (i) or (iii)
of the definition of Tax Event above has occurred and is continuing and the
Issuer is the holder of all of the Junior Subordinated Debentures, the
Corporation will pay Additional Sums, if any (as defined below), on the Junior
Subordinated Debentures. "Additional Sums" means the additional amounts as may
be necessary in order that the amount of Distributions then due and payable by
the Issuer on the outstanding Capital Securities and Common Securities of the
Issuer will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer has become subject as a result of a Tax
Event.
Redemption Procedures
- ---------------------
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer has funds on hand available
for the payment of such Redemption Price. See also "--Subordination of Common
Securities."
If the Issuer gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. With respect to Capital Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds sufficient to pay
the applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive the
Redemption Price, but without interest on such Redemption
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<PAGE> 44
Price, and such Capital Securities will cease to be outstanding. If any date
fixed for redemption of Capital Securities is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next succeeding
day which is a Business Day (without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer or by the Corporation pursuant to the Guarantee as described under
"--Description of Guarantee," Distributions on such Capital Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by the Issuer for such Capital Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be the date fixed for redemption for purposes of calculating the Redemption
Price.
Subject to applicable law (including, without limitation, the United States
federal securities laws), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement, and may resell such securities as described
in "Plan of Distribution."
If less than all of the outstanding Capital Securities and Common
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Capital Securities and Common Securities to be
redeemed shall be allocated pro rata to the outstanding Capital Securities and
the Common Securities based upon the relative Liquidation Amounts of such
classes. The particular Capital Securities to be redeemed shall be selected on a
pro rata basis not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Capital Securities not previously called
for redemption, or if the Capital Securities are then held in the form of a
Global Capital Security (as defined below), in accordance with DTC's customary
procedures, provided, in each case, that each holder of any Capital Securities
has at least 100 Capital Securities remaining after the redemption. The Property
Trustee shall promptly notify the securities registrar for the Trust Securities
in writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the aggregate Liquidation Amount of
Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Trust Securities
to be redeemed at its address appearing on the securities register for the Trust
Securities. Unless the Corporation defaults in payment of the Redemption Price
on the Junior Subordinated Debentures, on and after the Redemption Date interest
will cease to accrue on the Junior Subordinated Debentures or portions thereof
(and, unless payment of the Redemption Price in respect of the Capital
Securities is withheld or refused and not paid either by the Issuer or the
Corporation pursuant to the Guarantee, Distributions will cease to accumulate on
the Capital Securities or portions thereof) called for redemption.
Subordination of Common Securities
- ----------------------------------
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such Capital Securities and Common Securities.
However, if on any Distribution Date or Redemption Date a Debenture Event of
Default has occurred and is continuing as a result of any failure by the
Corporation to pay amounts in respect of Junior Subordinated Debentures when
due, no payment of any Distribution on, or Redemption Price of, any of the
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Capital Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all of the outstanding Capital Securities
then called for redemption, shall have been made or provided for, and
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<PAGE> 45
all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Capital Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holder of the Common Securities (i.e., the
Corporation) will be deemed to have waived any right to act with respect to any
such Event of Default under the Trust Agreement until the effect of all such
Events of Default with respect to such Capital Securities have been cured,
waived or otherwise eliminated. See"--Events of Default; Notice" and
"-- Description of Junior Subordinated Debentures--Debenture Events of Default."
Until all such Events of Default under the Trust Agreement with respect to the
Capital Securities have been so cured, waived or otherwise eliminated, the
Property Trustee will act solely on behalf of the holders of such Capital
Securities and not on behalf of the holders of the Common Securities, and only
the holders of such Capital Securities will have the right to direct the
Property Trustee to act on their behalf.
Liquidation Distribution upon Termination
- -----------------------------------------
The holder of the Common Securities (i.e., the Corporation) has the right
at any time to terminate the Issuer and, after satisfaction of liabilities to
creditors of the Issuer as provided by applicable law and the Expense Agreement,
cause the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities and Common Securities in liquidation of the Issuer. The
Corporation has committed to the Reserve Bank that, so long as the Corporation
(or an affiliate) is a holder of Common Securities, the Corporation will not
exercise its right to terminate the Issuer without having the prior approval of
the Federal Reserve to do so, if then required under applicable Federal Reserve
capital guidelines or policies.
The amount payable on the Capital Securities in the event of any
liquidation of the Issuer is $1,000 per Capital Security plus accumulated and
unpaid Distributions, subject to certain exceptions, which may be in the form of
a distribution of such amount in Junior Subordinated Debentures.
Pursuant to the Trust Agreement, the Issuer will automatically terminate
upon expiration of its term or, if earlier, will terminate on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the holder
of the Common Securities; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holders of the Trust Securities, if the holder of
the Common Securities has given written direction to the Property Trustee to
terminate the Issuer (which direction, subject to the foregoing restrictions, is
optional and wholly within the discretion of the holder of the Common
Securities); (iii) redemption of all of the Capital Securities as described
under "--Redemption"; and (iv) the entry of an order for the dissolution of the
Issuer by a court of competent jurisdiction.
If termination of the Issuer occurs as described in clause (i), (ii) or
(iv) above, the Issuer will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer as provided by
applicable law and the Expense Agreement to the holders of such Trust Securities
a Like Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of the Issuer available
for distribution to holders, after satisfaction of liabilities to creditors of
the Issuer as provided by applicable law, an amount equal to, in the case of
holders of Capital Securities, the aggregate of the Liquidation Amount plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If such Liquidation Distribution can be
paid only in part because the Issuer has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer on its Capital Securities shall be paid on a pro rata basis. The
holder of the Common Securities (i.e., the Corporation) will be entitled to
receive distributions upon any such liquidation pro rata with the holders of the
Capital Securities, except that if a Debenture Event of Default has occurred and
is continuing as a result of any failure by the Corporation to pay any amount in
respect of Junior Subordinated Debentures when due, the Capital Securities shall
have a priority over the Common Securities.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of the Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordi-
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<PAGE> 46
nated Debentures to be delivered upon such distribution with respect to Capital
Securities held by DTC or its nominee and (iii) any certificates representing
the Capital Securities not held by DTC or its nominee will be deemed to
represent the Junior Subordinated Debentures having a principal amount equal to
the stated Liquidation Amount of the Capital Securities and bearing accrued and
unpaid interest in an amount equal to the accumulated and unpaid Distributions
on the Capital Securities until such certificates are presented for transfer or
reissuance to the securities registrar for the Trust Securities.
If the Corporation does not redeem the Junior Subordinated Debentures prior
to maturity and the Issuer is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a termination and liquidation of the Issuer
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer, may trade at a discount to the price
that the investor paid to purchase the Capital Securities offered hereby.
Events of Default; Notice
- -------------------------
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "--Description of Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by the Issuer in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default by the Issuer in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Corporation by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Capital Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Corporation, as Depositor, and the Administrators are required to file annually
with the Property Trustee a certificate as to whether or not they are in
compliance with all the conditions and covenants applicable to them under the
Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Corporation to pay any amount in respect of Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
Capital Securities. See " -- Subordination of Common Securities," "--
Liquidation Distribution upon Termination" and "--Description of Junior
Subordinated Debentures -- Debenture Events of Default."
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The existence of an Event of Default does not entitle the holders of
Capital Securities to accelerate the maturity thereof.
Removal of Issuer Trustees; Appointment of Successors
- -----------------------------------------------------
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding Capital
Securities, the successor may be appointed by the holders of at least 25% in
Liquidation Amount of the outstanding Capital Securities. If an Issuer Trustee
resigns, such Trustee will appoint its successor. If the Issuer Trustee fails to
appoint a successor, the holders of at least 25% in Liquidation Amount of the
outstanding Capital Securities may appoint a successor. If a successor has not
been appointed by the holders, any holder of Capital Securities or Common
Securities or the other Issuer Trustee may petition a court in the State of
Delaware to appoint a successor. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank and have capital and surplus of at least $50,000,000. No
resignation or removal of an Issuer Trustee and no appointment of a successor
trustee shall be effective until the acceptance of appointment by the successor
trustee in accordance with the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
- ------------------------------------------
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Trustee is
a party, or any entity succeeding to all or substantially all the corporate
trust business of such Trustee, will be the successor of such Trustee under the
Trust Agreement, provided such entity is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer
- --------------------------------------------------------------------
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer may, at the request of
the holder of the Common Securities (i.e. the Corporation) and with the consent
of the holders of at least a majority in Liquidation Amount of the outstanding
Capital Securities, merge with or into, consolidate, amalgamate, or be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to a trust organized as such under the laws of any State, so long as
(i) such successor entity either (a) expressly assumes all of the obligations of
the Issuer with respect to the Capital Securities or (b) substitutes for the
Capital Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Capital Securities with respect to
distributions and payments upon liquidation, redemption and otherwise; (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures; (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Capital Securities (including any Successor Securities)
to be downgraded by any nationally recognized statistical rating organization;
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect; (v) such successor entity has a purpose substantially
identical to that of the Issuer; (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer has
received an opinion from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act") and (vii) the Corporation or any permitted successor
or
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<PAGE> 48
assignee owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Issuer may not, except with the consent of holders of 100% in
Liquidation Amount of the Capital Securities, consolidate, amalgamate, merge
with or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Issuer or the successor entity to be classified as an
association taxable as a corporation or as other than a grantor trust for United
States federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
- -------------------------------------------
Except as provided below and under "-- Description of Guarantee
- -- Amendments and Assignment" and as otherwise required by law and the Trust
Agreement, the holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holder of the
Common Securities (i.e. the Corporation), the Delaware Trustee and the Property
Trustee, without the consent of the holders of the Capital Securities (i) to
cure any ambiguity, correct or supplement any provisions in the Trust Agreement
that may be inconsistent with any other provision, or to make any other
provisions with respect to matters or questions arising under the Trust
Agreement, which are not inconsistent with the other provisions of the Trust
Agreement, provided that any such amendment shall not adversely affect the
interests of holders of Trust Securities in any material respect, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as may be necessary to ensure that the Issuer will not be classified for United
States federal income tax purposes as an association taxable as a corporation or
as other than a grantor trust at any time that any Trust Securities are
outstanding or to ensure that the Issuer will not be required to register as an
"investment company" under the Investment Company Act; provided, that any such
action does not adversely affect in any material respect the interests of any
holder of Trust Securities, and any amendments of the Trust Agreement will
become effective when notice of such amendments is given to the holders of Trust
Securities. The Trust Agreement may be amended by the holder of the Common
Securities (i.e.the Corporation) and the Property Trustee with (i) the consent
of holders representing not less than a majority in aggregate Liquidation Amount
of the outstanding Capital Securities and (ii) receipt by the Issuer Trustees of
an opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect the Issuer's status as a grantor trust or cause the Issuer to be an
association taxable as a corporation for United States federal income tax
purposes or the Issuer's exemption from status as an "investment company" under
the Investment Company Act, except that without the consent of each holder of
Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer, the
Property Trustee will not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or execute any
trust or power conferred on the Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive any past default that is waivable under
Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Indenture or the Junior Subordinated Debentures, where such consent shall
be required, without, in each case, obtaining the prior approval of the holders
of at least a majority in aggregate Liquidation Amount of the outstanding
Capital Securities, except that if a consent under the Indenture would require
the consent of each holder of Junior Subordinated Debentures affected thereby,
no such consent will be given by the Property Trustee without the prior consent
of each holder of the Capital Securities. The Issuer Trustees may not revoke any
action previously authorized or approved by a vote of the holders of the Capital
Securities except by subsequent vote of the holders of the Capital Securities.
The Property Trustee will notify each holder of
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<PAGE> 49
Capital Securities of any notice of default with respect to the Junior
Subordinated Debentures. In addition to obtaining the foregoing approvals of the
holders of the Capital Securities, before taking any of the foregoing actions,
the Property Trustee will obtain an opinion of counsel experienced in such
matters to the effect that the Issuer will not be classified as an association
taxable as a corporation or as other than a grantor trust for United States
federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each registered holder of Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustee, will, for purposes of such
vote or consent, be treated as if they were not outstanding.
Book Entry, Delivery and Form
- -----------------------------
The New Capital Securities will be issued in fully registered form in
minimum blocks of at least 100 (representing a minimum of $100,000 aggregate
Liquidation Amount) and the New Capital Securities must at all times be held in
blocks of at least 100. Any attempted transfer, sale or other disposition of the
New Capital Securities in a block having a Liquidation Amount of less than
$100,000 shall be deemed to be void and of no legal effect whatsoever.
The New Capital Securities initially will be evidenced by one or more
global Capital Securities (the "Global Capital Securities") which will be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.
("Cede") as DTC's nominee. Except as set forth below, record ownership of the
Global Capital Securities may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee and only in
amounts that would not cause a holder to own less than 100 Capital Securities.
DTC has advised the Issuer and the Corporation that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchaser), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer or ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Issuer and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants designated by the Initial
Purchasers with portions of the Liquidation Amount of the Global Capital
Securities and (ii) ownership of such interests in the Global Capital Securities
will be shown on, and the transfer or ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Capital Securities).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL CAPITAL
SECURITIES WILL NOT HAVE CAPITAL SECURITIES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF CAPITAL SECURITIES IN CERTIFICATED
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<PAGE> 50
FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER
THE TRUST AGREEMENT FOR ANY PURPOSE.
Payment of Distributions on, and the Redemption Price of, the Global
Capital Securities will be made to Cede, as the registered holder of the Global
Capital Securities, by wire transfer of immediately available funds on each
Distribution Date or Redemption Date. Neither the Corporation nor the Issuer
Trustees (or any Administrator, securities registrar, paying agent or exchange
agent under the Trust Agreement) will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Capital Security, for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
the performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
The Corporation and the Issuer have been informed by DTC that, with respect
to any payment of Distributions on, or the Redemption Price of, the Global
Capital Security, DTC's practice is to credit Participants' accounts on the
payment date therefor with payments in amounts proportionate to their respective
beneficial interests in the Capital Securities represented by the Global Capital
Securities, as shown on the records of DTC (adjusted as necessary so that such
payments are made with respect to whole Capital Securities only), unless DTC has
reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in Capital Securities
represented by the Global Capital Security held through such Participants will
be the responsibility of such Participants, as is the case with securities held
for the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Capital Securities represented by the Global
Capital Securities to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest. Furthermore, the laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability to
transfer beneficial interests in the Global Capital Securities to such persons
may be limited.
DTC has advised the Corporation and the Issuer that it will take any action
permitted to be taken by a holder of Capital Securities (including, without
limitation, the presentation of Capital Securities for exchange as described
below) only at the direction of one or more Participants to whose account with
DTC interests in the Global Capital Securities are credited and only in respect
of the aggregate Liquidation Amount of the Capital Securities represented by the
Global Capital Securities as to which such Participant or Participants has or
have given such direction.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Capital Securities among Participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. The Global
Capital Security is exchangeable for definitive Capital Securities in registered
certificated form if (i) DTC advises the Corporation and the Property Trustee
that it is no longer willing or able to properly discharge its responsibilities
with respect to the Global Capital Securities, and the Property Trustee is
unable to locate a qualified successor, (ii) the Issuer at its option advises
DTC in writing that it elects to terminate the book-entry system through DTC or
(iii) after the occurrence of a Debenture Event of Default.
So long as DTC or its nominee is the registered holder of the Global
Capital Security, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Capital Securities represented by the Global
Capital Securities for all purposes under the Trust Agreement governing the
Capital Securities. Except as provided above, owners of beneficial interests in
the Global Capital Securities will not be entitled to have any of the individual
Capital Securities represented by the Global Capital Securities registered in
their names, will not receive or be entitled to receive physical delivery of any
such Capital Securities in definitive form and will not be considered the owners
or holders thereof under the Trust Agreement.
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<PAGE> 51
Payment and Paying Agent
- ------------------------
Payments in respect of the Capital Securities held in global form will be
made to DTC, which will credit the relevant accounts at DTC on the applicable
Distribution Dates or, if the Issuer's Capital Securities are not held by DTC,
such payments will be made by check mailed to the address of the holder entitled
thereto as such address appears on the Register. The paying agent (the "Paying
Agent") will initially be the Property Trustee and any co-paying agent chosen by
the Property Trustee and acceptable to the Administrators. The Paying Agent will
be permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee and the Administrators. If the Property Trustee is no longer
the Paying Agent, the Property Trustee will appoint a successor (which must be a
bank or trust company reasonably acceptable to the Administrators) to act as
Paying Agent.
Registrar and Transfer Agent
- ----------------------------
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer will not be required to register or cause to be registered
the transfer of its Capital Securities after such Capital Securities have been
called for redemption.
Information Concerning the Property Trustee
- -------------------------------------------
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative courses of
action, or construe ambiguous provisions in the Trust Agreement, or is unsure of
the application of any provision of the Trust Agreement, and the matter is not
one on which holders of Capital Securities are entitled under the Trust
Agreement to vote, then the Property Trustee will deliver a notice to the
Corporation requesting the Corporation's direction as to the course of action to
be taken and, if no so directed, the Property Trustee will take such action as
it deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith, negligence
or willful misconduct.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Corporation, see "--Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
Miscellaneous
- -------------
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer in such a way that the Issuer
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act and will not be classified as an association taxable
as a corporation or as other than a grantor trust for United States federal
income tax purposes and so that the Junior Subordinated Debentures will be
treated as indebtedness of the Corporation for United States federal income tax
purposes. In this connection, the Property Trustee and the holders of Common
Securities are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Issuer or the Trust Agreement, that the
Property Trustee and the holder of Common Securities (i.e., the Corporation)
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Capital Securities.
Holders of Capital Securities have no preemptive or similar rights.
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<PAGE> 52
The Issuer may not borrow money or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued as separate series under the Indenture,
under which Bankers Trust Company is acting as Debenture Trustee. The Indenture
has been qualified under the Trust Indenture Act. This summary of certain terms
and provisions of the Junior Subordinated Debentures and the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Indenture (as
amended or supplemented from time to time) are referred to herein, such defined
terms are incorporated herein by reference. A copy of the form of Indenture is
available from the Debenture Trustee upon request.
General
- -------
Concurrently with the issuance of the Capital Securities, the Issuer
invested the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in the Old Junior Subordinated Debentures
issued by the Corporation. Pursuant to the Exchange Offer, the Corporation will
exchange the Old Junior Subordinated Debentures for the New Junior Subordinated
Debentures as soon as practicable after the date hereof. No Old Junior
Subordinated Debentures will remain outstanding after such exchange. The
following is a description of the New Junior Subordinated Debentures (referred
to in this subsection as the "Junior Subordinated Debentures"). The Junior
Subordinated Debentures will bear interest, accruing from the date of initial
issuance, at the annual rate of 8.25% of the principal amount thereof, payable
semi-annually in arrears on June 15, and December 15, of each year (each, an
"Interest Payment Date"), commencing June 15, 1997, to the person in whose name
each Junior Subordinated Debenture is registered at the close of business on the
June 1 and December 1 next preceding such Interest Payment Date. It is
anticipated that, until the liquidation, if any, of the Issuer, each Junior
Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Trust Securities. The amount of interest
payable for any period less than a full interest period will be computed on the
basis of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of interest payable for any full
interest period will be computed by dividing the rate per annum by two. If any
date on which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding Business Day (without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date such payment was originally payable. Accrued interest that is not
paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at the rate per annum of
8.25%, compounded semi-annually and computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by two. The term "interest" as
used herein includes semiannual interest payments, interest on semi-annual
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on the Stated Maturity date,
December 15, 2026.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Corporation. Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary,
including the Corporation's bank and nonbank subsidiaries upon such subsidiary's
dissolution, winding-up, liquidation or reorganization or otherwise (and thus
the ability of holders of the Junior Subordinated Debentures to benefit
indirectly from such distribution), is subject to the prior claims of creditors
of that subsidiary, except to the extent that the Corporation may itself be a
creditor of that subsidiary and its claims are recognized. There are various
legal limitations on the extent to which certain of the Corporation's
subsidiaries may extend credit, pay dividends or otherwise supply funds to the
Corporation or certain of its other subsidiaries. Accordingly, the
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<PAGE> 53
Junior Subordinated Debentures will be effectively subordinated to all existing
and future liabilities of the Corporation's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the Corporation for
payments on the Junior Subordinated Debentures. See "KeyCorp." The Indenture
does not limit the incurrence or issuance of other secured or unsecured debt by
the Corporation, including Senior Indebtedness, whether under the Indenture or
any existing or other indenture that the Corporation may enter into in the
future or otherwise. See "-- Subordination."
Option To Extend Interest Payment Period
- ----------------------------------------
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity. At the end of such Extension Period, the Corporation
must pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of 8.25%, compounded semi-annually and computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a partial
month in a period, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by two. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Capital Securities while outstanding) will be required to accrue interest income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not, and may not
permit any subsidiary of the Corporation to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Corporation's capital stock or (ii) make any payment
of principal of or interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Corporation (including other junior
subordinated debentures) that rank pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by the Corporation of the debt securities of any
subsidiary of the Corporation if such guarantee ranks pari passu in all respects
with or junior in interest to the Junior Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Corporation in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or shareholder stock purchase plan or in connection with the issuance of capital
stock of the Corporation (or securities convertible into or exercisable for such
stock) as consideration in an acquisition transaction entered into prior to the
Extension Period, (b) as a result of an exchange or conversion of any class or
series of the Corporation's capital stock for any other class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation's capital stock, (c) the
purchase of fractional interests in shares of the Corporation's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with the implementation or amendment of the Corporation shareholders'
rights plan (or any successor thereto), or the issuance of rights, stock or
other property under any such rights plan, or the redemption or repurchase of
rights pursuant thereto, or (e) any dividend in the form of stock, warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that on
which the dividend is being paid or ranks pari passu with or junior to such
stock).
Prior to the termination of any such Extension Period, the Corporation may
further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Corporation may
elect to begin a new Extension Period subject to the above conditions. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Corporation must give the Issuer Trustees notice of its election of
such Extension Period at least one Business Day prior to the earlier of (i) the
date the Distributions on the Capital Securities would have been payable but for
the election to begin such Extension Period and (ii) the date the Property
Trustee is
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<PAGE> 54
required to give notice to holders of the Capital Securities of the record date
or the date such Distributions are payable, but in any event not less than one
Business Day prior to such record date. The Property Trustee will give notice of
the Corporation's election to begin a new Extension Period to the holders of the
Capital Securities. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period.
Redemption
- ----------
The Junior Subordinated Debentures are redeemable prior to the Stated
Maturity at the option of the Corporation (i) on or after December 15, 2006, in
whole at any time or in part from time to time, or (ii) in whole (but not in
part) at any time within 90 days following the occurrence and during the
continuation of a Tax Event or Capital Treatment Event (each as defined under
"-- Description of Capital Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer to redeem the Capital Securities. The Corporation has
committed to the Reserve Bank that it will not cause any such redemption without
having the prior approval of the Federal Reserve to do so, if then required
under applicable Federal Reserve capital guidelines or policies.
The Redemption Price for Junior Subordinated Debentures in the case of a
redemption under (i) above shall equal the following prices, expressed in
percentages of the principal amount, together with accrued interest to but
excluding the date fixed for redemption. If redeemed during the 12-month period
beginning December 15:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------ ----------
<S> <C>
2006.......................... 104.1250%
2007.......................... 103.7125
2008.......................... 103.3000
2009.......................... 102.8875
2010.......................... 102.4750
2011.......................... 102.0625
2012.......................... 101.6500
2013.......................... 101.2375
2014.......................... 100.8250
2015.......................... 100.4125
</TABLE>
and at 100% on or after December 15, 2016.
The Redemption Price for Junior Subordinated Debentures following a Tax
Event or Capital Treatment Event, as described under (ii) above, will equal the
Make-Whole Amount (as defined under "-- Description of Capital
Securities -- Redemption"), together with accrued interest to but excluding the
date fixed for redemption.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of the Junior Subordinated
Debentures to be redeemed at its registered address.
Additional Sums
- ---------------
The Corporation has covenanted in the Indenture that, if and for so long as
(i) the Issuer is the holder of all Junior Subordinated Debentures and (ii) the
Issuer is required to pay any additional taxes, duties or other governmental
charges as a result of a Tax Event, the Corporation will pay as additional sums
on the Junior Subordinated Debentures such amounts as may be required so that
the Distributions payable by the Issuer will not be reduced as a result of any
such additional taxes, duties or other governmental charges. See "Description of
Capital Securities -- Redemption."
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Registration, Denomination and Transfer
- ---------------------------------------
The Junior Subordinated Debentures will initially be registered in the name
of the Property Trustee, as trustee of the Issuer. If the Junior Subordinated
Debentures are distributed to holders of Capital Securities, it is anticipated
that the depositary arrangements for the Junior Subordinated Debentures will be
substantially identical to those in effect for the Capital Securities. See
"Description of Capital Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Corporation within 90 days of receipt of notice from DTC to such effect, the
Corporation will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede, the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "-- Description of the
Capital Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in The City of
New York or at the offices of any Paying Agent or transfer agent appointed by
the Corporation, provided that payment of interest may be made at the option of
the Corporation by check mailed to the address of the persons entitled thereto
or by wire transfer.
The Junior Subordinated Debentures will be issuable only in registered form
without coupons in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof. Junior Subordinated Debentures will be exchangeable
for other Junior Subordinated Debentures of like tenor, of any authorized
denominations, and of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Indenture or at the office of any transfer agent designated by the Corporation
for such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. The Corporation will appoint
the Debenture Trustee as securities registrar under the Indenture. The
Corporation may at any time designate additional transfer agents with respect to
the Junior Subordinated Debentures.
In the event of any redemption, neither the Corporation nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any moneys deposited with the Debenture Trustee or any paying agent, or
then held by the Corporation in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Corporation, be repaid
to the Corporation and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Corporation for
payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Corporation
- ----------------------------------------------------------------------
The Corporation has covenanted that it will not, and will not permit any
subsidiary of the Corporation to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Corporation's capital stock or (ii) make any payment
of principal of or interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Corporation
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<PAGE> 56
(including other junior subordinated debentures) that rank pari passu in all
respects with or junior in interest to the Junior Subordinated Debentures or
make any guarantee payments with respect to any guarantee of the Corporation of
the debt securities of any subsidiary of the Corporation if such guarantee ranks
pari passu in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Corporation in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or shareholder stock purchase plan or in connection
with the issuance of capital stock of the Corporation (or securities convertible
into or exercisable for such stock) as consideration in an acquisition
transaction theretofore entered into prior to the Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Corporation's
capital stock for any other class or series of the Corporation's capital stock
or of any class or series of the Corporation's indebtedness for any class or
series of the Corporation's capital stock, (c) the purchase of fractional
interest in shares of the Corporation's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged, (d) any declaration of a dividend in connection with the
implementation or amendment of the Corporation's shareholder rights plan (or any
successor thereto), or the issuance of rights, stock or other property under any
such rights plan, or the redemption or repurchase of rights pursuant thereto, or
(e) any dividend in the form of stock, warrants, options or other rights where
the dividend stock or the stock issuable upon exercise of such warrants, options
or other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event of which the Corporation has actual knowledge that (a) with
the giving of notice or the lapse of time, or both, would constitute a
"Debenture Event of Default" and (b) that the Corporation has not taken
reasonable steps to cure, (ii) if such Junior Subordinated Debentures are held
by the Issuer, the Corporation is in default with respect to its payment of any
obligations under the Guarantee or (iii) the Corporation has given notice of its
selection of an Extension Period as provided in the Indenture with respect to
the Junior Subordinated Debentures and has not rescinded such notice, or such
Extension Period, or any extension thereof, is continuing.
The Corporation has covenanted in the Indenture (i) to continue to hold
directly or indirectly 100% of the Common Securities of the Issuer, provided
that certain successors that are permitted pursuant to the Indenture may succeed
to the Corporation's ownership of the Common Securities, (ii) as holder of the
Common Securities, not to voluntarily terminate or liquidate the Issuer, except
(a) in connection with a distribution of Junior Subordinated Debentures to the
holders of the Capital Securities in liquidation of the Issuer or (b) in
connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement and (iii) to use its reasonable efforts, consistent with the
terms and provisions of the Trust Agreement, to cause the Issuer to remain
classified as a grantor trust and not as an association taxable as a corporation
for United States federal income tax purposes. In addition, the Corporation has
committed to the Reserve Bank that, so long as the Corporation is the holder of
the Common Securities, the Corporation will not voluntarily terminate or
liquidate the Issuer without having the prior approval of the Federal Reserve to
do so, if then required under applicable Federal Reserve capital guidelines or
policies.
Modification; Waiver
- --------------------
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the provisions of the Indenture for specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies (provided
that any such action does not materially adversely affect the interest of the
holders of the Junior Subordinated Debentures or the holders of the Capital
Securities so long as they remain outstanding) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Corporation and the Debenture Trustee, with
the consent of the holders of not less than a majority in principal amount of
the Junior Subordinated Debentures, to modify the Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where,
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<PAGE> 57
or the currency in which, any such amount is payable or impair the right to
institute suit for the enforcement of any Junior Subordinated Debenture or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures the
holders of which are required to consent to any such modification of the
Indenture. Furthermore, so long as any of the Capital Securities remain
outstanding, no such modification may be made that adversely affects the holders
of such Capital Securities in any material respect, and no termination of the
Indenture may occur, and no waiver of any Debenture Event of Default or
compliance with any covenant under the Indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate Liquidation
Amount of the outstanding Capital Securities unless and until the principal of
the Junior Subordinated Debentures and all accrued and unpaid interest thereon
have been paid in full and certain other conditions are satisfied.
In addition, the Corporation and the Debenture Trustee may execute, without
the consent of any holder of Junior Subordinated Debentures, any supplemental
indenture to the Indenture for the purpose of creating any new series of Junior
Subordinated Debentures.
Debenture Events of Default
- ---------------------------
As defined in the Indenture, any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an "Event of Default" with respect to the Junior
Subordinated Debentures:
(i) failure for 30 days to pay any interest on such Junior
Subordinated Debentures, when due (subject to the deferral of any due date
in the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Corporation from the Debenture Trustee or the holders of at least
25% in aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization of the
Corporation.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default is referred to as a "Debenture Event of Default." As described in
"-- Description of Capital Securities -- Events of Default; Notice" the
occurrence of a Debenture Event of Default will also constitute an Event of
Default with respect to the Capital Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of outstanding Junior Subordinated
Debentures may declare the principal due immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities shall
have such right. The holders of at least a majority in aggregate outstanding
principal amount of outstanding Junior Subordinated Debentures may annul such
declaration and waive the default if all defaults (other than the non-payment of
the principal of Junior Subordinated Debentures which has become due solely by
such acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate outstanding Liquidation Amount of the
Capital Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured
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and a sum sufficient to pay all matured installments of interest and principal
due otherwise than by acceleration has been deposited with the Debenture
Trustee) or a default in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each outstanding Junior Subordinated Debenture. See " -- Modification; Waiver."
Should the holders of such Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Capital Securities shall have such right. The
Corporation is required to file annually with the Debenture Trustee a
certificate as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the
Indenture, to be forthwith due and to enforce its other rights as a creditor
with respect to the Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Capital Securities
- --------------------------------------------------------------
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Corporation to pay any amounts
payable in respect of the Junior Subordinated Debentures on the date such
amounts are otherwise payable, a registered holder of Capital Securities may
institute a legal proceeding directly against the Corporation for enforcement of
payment to such holder of an amount equal to the amount payable in respect of
such Junior Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Capital Securities held by such holder (a
"Direct Action"). The Corporation may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
the holders of all of the Capital Securities. If the right to bring a Direct
Action is removed, the Issuer may become subject to the reporting obligations
under the Exchange Act. The Corporation will have the right under the Indenture
to set-off any payment made to such holder of Capital Securities by the
Corporation in connection with a Direct Action.
The holders of the Capital Securities are not able to exercise directly any
remedies available to the holders of the Junior Subordinated Debentures except
under the circumstances described in the preceding paragraph. See "Description
of Capital Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
- ------------------------------------------------------------
The Indenture provides that the Corporation may not consolidate with or
merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, and no entity may consolidate
with or merge into the Corporation or convey, transfer or lease its properties
and assets substantially as an entirety to the Corporation, unless (i) if the
Corporation consolidates with or merges into another entity or conveys or
transfers its properties and assets substantially as an entirety to any entity,
the successor entity is organized under the laws of the United States or any
state or the District of Columbia, and such successor entity expressly assumes
the Corporation's obligations in respect of the Junior Subordinated Debentures
issued under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would constitute a Debenture Event of Default, has occurred and is
continuing; (iii) such transaction is permitted under the Trust Agreement and
the Guarantee and does not give rise to any breach or violation of the Trust
Agreement or the Guarantee; and (iv) certain other conditions as prescribed in
the Indenture are satisfied.
The provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
Satisfaction and Discharge
- --------------------------
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at the Stated Maturity within one year, and the Corporation deposits or causes
to be
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deposited with the Debenture Trustee funds, in trust, for the purpose and in an
amount sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal (and premium, if any) and interest and
Additional Sums to the date of the deposit or to the Stated Maturity, as the
case may be, then the Indenture will cease to be of further effect (except as to
the Corporation's obligations to pay all other sums due pursuant to the
Indenture and to provide the officers' certificates and opinions of counsel
described therein), and the Corporation will be deemed to have satisfied and
discharged the Indenture.
Subordination
- -------------
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Indenture, to all Senior Indebtedness
(as defined below) of the Corporation. If the Corporation defaults in the
payment of any principal, premium, if any, or interest, if any, or any other
amount payable on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or redemption or by
declaration of acceleration or otherwise, then, unless and until such default
has been cured or waived or has ceased to exist or all Senior Indebtedness has
been paid, no direct or indirect payment (in cash, property, securities, by
set-off or otherwise) may be made or agreed to be made on the Junior
Subordinated Debentures, or in respect of any redemption, repayment, retirement,
purchase or other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Debt" means any obligation of the Corporation to
its creditors, whether now outstanding or subsequently incurred, other than any
obligation as to which, in the instrument creating or evidencing the obligation
or pursuant to which the obligation is outstanding, it is provided that such
obligation is not Senior Debt. As used herein, "Senior Subordinated Debt" means
any obligation of the Corporation to its creditors, whether now outstanding or
subsequently incurred, where the instrument creating or evidencing the
obligation or pursuant to which the obligation is outstanding, provides that it
is subordinate and junior in right of payment to Senior Debt. Senior
Subordinated Debt includes the Corporation's outstanding subordinated debt
securities and any subordinated debt securities issued in the future with
substantially similar subordination terms and does not include the Junior
Subordinated Debentures or any subordinated debt securities issued in the past
or future with substantially similar subordination terms. Senior Debt does not
include Senior Subordinated Debt or the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" shall include (i) Senior Debt (but
excluding trade accounts payable and accrued liabilities arising in the ordinary
course of business) and (ii) the Allocable Amounts of Senior Subordinated Debt.
As of September 30, 1996, the Corporation had approximately $2.5 billion of
Senior Indebtedness outstanding.
As used herein, "Allocable Amounts," when used with respect to any Senior
Subordinated Debt, means the amount necessary to pay all principal of (and
premium, if any) and interest, if any, on such Senior Subordinated Debt in full
less, if applicable, any portion of such amounts which would have been paid to,
and retained by, the holders of such Senior Subordinated Debt (whether as a
result of the receipt of payments by the holders of such Senior Subordinated
Debt from the Corporation or any other obligor thereon or from any holders of,
or trustee in respect of, other indebtedness that is subordinate and junior in
right of payment to such Senior Subordinated Debt pursuant to any provision of
such indebtedness for the payment over of amounts received on account of such
indebtedness to the holders of such Senior Subordinated Debt) but for the fact
that such Senior Subordinated Debt is subordinate or junior in right of payment
to trade accounts payable or accrued liabilities arising in the ordinary course
of business.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv) any
other marshalling of the assets of the Corporation, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on
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account of the Junior Subordinated Debentures. In such event, any payment or
distribution on account of the Junior Subordinated Debentures, whether in cash,
securities or other property, that would otherwise (but for the subordination
provisions) be payable or deliverable in respect of the Junior Subordinated
Debentures will be paid or delivered directly to the holders of Senior
Indebtedness in accordance with the priorities then existing among such holders
until all Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Corporation
ranking on a parity with the Junior Subordinated Debentures, will be entitled to
be paid from the remaining assets of the Corporation the amounts at the time due
and owing on the Junior Subordinated Debentures and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, will be made on account of any capital stock or obligations of the
Corporation ranking junior to the Junior Subordinated Debentures and such other
obligations. If any payment or distribution on account of the principal of or
interest on the Junior Subordinated Debentures of any character or any security,
whether in cash, securities or other property, is received by any holder of any
Junior Subordinated Debentures in contravention of any of the terms hereof and
before all the Senior Indebtedness has been paid in full, such payment or
distribution or security will be received in trust for the benefit of, and must
be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. By reason of such subordination, in the event of the
insolvency of the Corporation, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Corporation. Such subordination will
not prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Corporation is a non-operating holding company and almost all of the
operating assets of the Corporation are owned by the Corporation's subsidiaries.
The Corporation relies primarily on dividends from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. The Corporation is a legal entity separate
and distinct from its banking and non-banking affiliates. The principal sources
of the Corporation's income are dividends, interest and fees from its principal
banking subsidiaries and its other banking and non-banking affiliates. The bank
subsidiaries of KeyCorp (the "Banks") are subject to certain restrictions
imposed by federal law on any extensions of credit to, and certain other
transactions with, KeyCorp and certain other affiliates, and on investments in
stock or other securities thereof. Such restrictions prevent KeyCorp and such
other affiliates from borrowing from the Banks unless the loans are secured by
various types of collateral. Further, such secured loans, other transactions and
investments by any of the Banks are generally limited in amount as to KeyCorp
and as to each of such other affiliates to 10% of such Bank's capital and
surplus and as to KeyCorp and all of such other affiliates to an aggregate of
20% of such Bank's capital and surplus. In addition, payment of dividends to
KeyCorp by the Banks is subject to ongoing review by banking regulators and is
subject to various statutory limitations and in certain circumstances requires
approval by banking regulatory authorities. Accordingly, the Junior Subordinated
Debentures will be effectively subordinated to all existing and future
liabilities of KeyCorp's subsidiaries. Holders of Junior Subordinated Debentures
should look only to the assets of KeyCorp for payments of interest and principal
and premium, if any.
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation expects
from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Governing Law
- -------------
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
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Information Concerning the Debenture Trustee
- --------------------------------------------
The Debenture Trustee, other than during the continuance of a default by
the Corporation in performance of its obligations under the Indenture, is under
no obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF GUARANTEE
The Old Guarantee was executed and delivered by the Corporation
concurrently with the issuance by the Issuer of the Old Capital Securities for
the benefit of the holders from time to time of such Capital Securities. As soon
as practicable after the date hereof, the Old Guarantee will be exchanged by the
Corporation for the New Guarantee. The New Guarantee has been qualified under
the Trust Indenture Act. Bankers Trust Company will act as Guarantee Trustee.
This summary of certain provisions of the Guarantee Agreement does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee, including therein of certain terms, and
the Trust Indenture Act. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Capital Securities. A copy of the Guarantee will
be available upon request from the Guarantee Trustee.
General
- -------
The Corporation has irrevocably agreed (and under the New Guarantee will
irrevocably agree) to pay in full on a subordinated and junior basis, to the
extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Capital Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert other than
the defense of payment. The following payments with respect to the Capital
Securities, to the extent not paid by or on behalf of the Issuer (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on such Capital Securities, to the extent that
the Issuer has funds on hand available therefor at such time; (ii) the
Redemption Price with respect to any Capital Securities called for redemption,
to the extent that the Issuer has funds on hand available therefor at such time;
and (iii) upon a voluntary or involuntary termination, winding-up or liquidation
of the Issuer (unless the Junior Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Issuer has funds on hand available therefor at
such time, and (b) the amount of assets of the Issuer remaining available for
distribution to holders of the Capital Securities on liquidation of the Issuer.
The Corporation's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Corporation to the holders of the
Capital Securities or by causing the Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated and junior
basis of the Issuer's obligations under the Capital Securities, but will apply
only to the extent that the Issuer has funds sufficient to make such payments,
and is not a guarantee of collection.
If the Corporation does not make interest payments on the Junior
Subordinated Debentures held by the Issuer, the Issuer will not be able to pay
any amounts payable in respect of the Capital Securities and will not have funds
legally available therefor. The Guarantee will rank subordinate and junior in
right of payment to all Senior Indebtedness of the Corporation. See "--Status of
the Guarantee." Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary upon
such subsidiary's dissolution, winding-up, liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Corporation may itself be a creditor of that
subsidiary and its claims are recognized. There are also various legal
limitations on the extent to which certain of the Corporation's subsidiaries may
extend credit, pay dividends or otherwise supply funds to the Corporation or
certain of its other subsidiaries. Accordingly, the Corporation's obligations
under the
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Guarantee will be effectively subordinated and junior in right of payment to all
existing and future liabilities of the Corporation's subsidiaries, and claimants
under the Guarantee should look only to the assets of the Corporation for
payments thereunder. See "KeyCorp." The Guarantee does not limit the incurrence
or issuance of other secured or unsecured debt of the Corporation, including
Senior Indebtedness, whether under the Indenture, any other indenture that the
Corporation may enter into in the future or otherwise.
The Corporation has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer's obligations in respect of the Capital Securities. See "Relationship
Among the Capital Securities, the Junior Subordinated Debentures, the Guarantee
and the Expense Agreement."
Status of the Guarantee
- -----------------------
The Guarantee will constitute an unsecured obligation of the Corporation
and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Corporation in the same manner as the Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
Amendments and Assignment
- -------------------------
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of at least a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "-- Description of the Capital Securities--Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the holders
of the outstanding Capital Securities.
Events of Default
- -----------------
An event of default under the Guarantee will occur upon the failure of the
Corporation to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of at least a majority in aggregate
Liquidation Amount of the outstanding Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer, the
Guarantee Trustee or any other person or entity.
The Corporation, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
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Information Concerning the Guarantee Trustee
- --------------------------------------------
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Corporation in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default under the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Corporation, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Termination of the Guarantee
- ----------------------------
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable in respect of Capital Securities upon liquidation
of the Issuer or upon distribution of Junior Subordinated Debentures to the
holders of the Capital Securities. The Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any holder of Capital
Securities must restore payment of any sums paid under the Capital Securities or
the Guarantee.
Governing Law
- -------------
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to an Agreement as to Expenses and Liabilities entered into by the
Corporation under the Trust Agreement (as amended or supplemented from time to
time, the "Expense Agreement"), the Corporation, as holder of the Common
Securities, irrevocably and unconditionally guaranteed to each person or entity
to whom the Issuer becomes indebted or liable, the full payment of any costs,
expenses or liabilities of the Issuer, other than obligations of the Issuer to
pay to the holders of Trust Securities of the amounts due such holders pursuant
to the terms of the Trust Securities. The Expense Agreement constitutes an
unsecured obligation of the Corporation and will rank subordinate and junior in
right of payment to all Senior Indebtedness of the Corporation in the same
manner as the Guarantee and the Junior Subordinated Debentures.
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DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all material respect to
the New Securities, except that (i) the Old Securities have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the applicable Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except under limited circumstances); (ii) the New Capital Securities will not
provide for any increase in the Distribution rate thereon; and (iii) the New
Junior Subordinated Debentures will not provide for any increase in the interest
rate thereon. The Registration Rights Agreement provides that in the event (i)
the registration statement relating to the New Securities is not filed before
May 29, 1997, (ii) such registration statement is not declared effective within
30 days of the required filing date, (iii) the Exchange Offer is not consummated
on or before the date 30 days after the effectiveness of such registration
statement, or, (iv) in certain limited circumstances, a shelf registration
statement (the "Shelf Registration Statement") with respect to the resale of the
Old Capital Securities is not filed or declared effective within a specified
time, then interest will accrue (in addition to the stated interest rate on the
Junior Subordinated Debentures) at the rate of 0.25% per annum on the principal
amount of the Junior Subordinated Debentures and Distributions will accrue (in
addition to the stated Distribution rate on the Capital Securities) at the rate
of 0.25% per annum on the Liquidation Amount of the Capital Securities, for the
period from the occurrence of such event until the earlier of (i) such time as
such required Exchange Offer is consummated or any required Shelf Registration
Statement is effective and (ii) the termination of certain transfer restrictions
on the Old Securities as a result of the application of Rule 144(k) of the
Securities Act. The New Securities are not, and upon consummation of the
Exchange Offer the Old Securities will not be, entitled to any such additional
interest or Distributions. Accordingly, holders of Old Capital Securities should
review the information set forth under "Risk Factors -- Consequences of Failure
to Exchange Old Capital Securities" and "Description of New Securities."
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES, THE GUARANTEE
AND THE EXPENSE AGREEMENT
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer has funds available for such payment) are irrevocably
guaranteed by the Corporation as and to the extent set forth under "Description
of New Securities -- Description of Guarantee." Taken together, the
Corporation's obligations under the Junior Subordinated Debentures, the
Indenture, the Trust Agreement, the Expense Agreement and the Guarantee provide,
in the aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations in respect of the Capital
Securities. If and to the extent that the Corporation does not make payments on
the Junior Subordinated Debentures, the Issuer will not pay Distributions or
other amounts due on the Capital Securities. The Guarantee does not cover
payment of amounts payable with respect to the Capital Securities when the
Issuer does not have sufficient funds to pay such amounts. In such event, the
remedy of a holder of Capital Securities is to institute a legal proceeding
directly against the Corporation for enforcement of payment of the Corporation's
obligations under the Junior Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Capital Securities held by such holder.
The obligations of the Corporation under the Junior Subordinated
Debentures, the Guarantee and the Expense Agreement are subordinate and junior
in right of payment to all Senior Indebtedness.
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SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable in respect of the Capital Securities, primarily because
(i) the aggregate principal amount of the Junior Subordinated Debentures will be
equal to the sum of the aggregate stated Liquidation Amount of the Capital
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Capital Securities;
(iii) the holder of the Common Securities (i.e., the Corporation) will pay for
all and any costs, expenses and liabilities of the Issuer except the Issuer's
obligations to holders of the Trust Securities; and (iv) the Trust Agreement
further provides that the Issuer will not engage in any activity that is not
consistent with the limited purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set-off any payment it is otherwise required to make thereunder
against and to the extent the Corporation has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer or any
other person or entity. See "Description of New Securities -- Description of
Guarantee."
A default or event of default under any Senior Indebtedness of the
Corporation would not constitute a default or Event of Default in respect of the
Capital Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Corporation, the subordination
provisions of the Indenture provide that no payments may be made in respect of
the Junior Subordinated Debentures until such Senior Indebtedness has been paid
in full or any payment default thereunder has been cured or waived. Failure to
make payments on the Junior Subordinated Debentures would constitute a Debenture
Event of Default (and, therefore, an Event of Default under the Trust
Agreement). See "Description of New Securities -- Description of Capital
Securities -- Events of Default; Notice" and "-- Description of Junior
Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF ISSUER
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer, and the Issuer exists for the sole purpose of
issuing its Capital Securities and Common Securities and investing the proceeds
thereof in Junior Subordinated Debentures. A principal difference between the
rights of a holder of a Capital Security and a holder of a Junior Subordinated
Debenture is that a holder of a Junior Subordinated Debenture is entitled to
receive from the Corporation payments on Junior Subordinated Debentures held,
while a holder of Capital Securities is entitled to receive Distributions or
other amounts distributable with respect to the Capital Securities from the
Issuer (or from the Corporation under the Guarantee) only if and to the extent
the Issuer has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding up or liquidation of
the Issuer, other than any such termination, winding up or liquidation involving
the distribution of the Junior Subordinated Debentures, after satisfaction of
liabilities to creditors of the Issuer as required by applicable law and the
Expense Agreement, the holders of the Capital Securities will be entitled to
receive, out of assets held by the Issuer, the Liquidation Distribution in cash.
See "Description of New Securities -- Description of Capital Securities --
Liquidation Distribution upon Termination." Upon any voluntary or involuntary
liquidation or bankruptcy of the Corporation, the Property Trustee, as
registered holder of the Junior Subordinated Debentures, would be a subordinated
creditor of the Corporation, subordinated and junior in right of payment to all
Senior Indebtedness as set forth in the Indenture, but entitled to receive
payment in full of all amounts payable with respect to the Junior Subordinated
Debentures before any shareholders of the Corporation receive payments
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or distributions. Since the Corporation is the guarantor under the Guarantee and
has agreed, as holder of the Common Securities, to pay for all costs, expenses
and liabilities of the Issuer (other than the Issuer's obligations to the
holders of the Trust Securities) under the Expense Agreement, the positions of a
holder of the Capital Securities and a holder of such Junior Subordinated
Debentures relative to other creditors and to stockholders of the Corporation in
the event of liquidation or bankruptcy of the Corporation are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of Capital Securities.
This summary only addresses the tax consequences to a person that acquires
Capital Securities on their original issue at their original offering price and
that is (i) an individual citizen or resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States
or any state thereof or the District of Columbia or (iii) an estate or trust the
income of which is subject to United States federal income tax regardless of
source (a "United States Person"). This summary does not address all tax
consequences that may be applicable to a United States Person that is a
beneficial owner of Capital Securities, nor does it address the tax consequences
to (i) persons that are not United States Persons, (ii) persons that may be
subject to special treatment under United States federal income tax law, such as
banks, insurance companies, thrift institutions, regulated investment companies,
real estate investment trusts, tax-exempt organizations and dealers in
securities or currencies, (iii) persons that will hold Capital Securities as
part of a position in a "straddle" or as part of a "hedging," "conversion" or
other integrated investment transaction for federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar or (v) persons
that do not hold Capital Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Sullivan & Cromwell, special tax counsel to the
Corporation and the Issuer. This summary is based upon the Code, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time. Such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of Capital Securities. In
particular, legislation has been proposed that could adversely affect the
Corporation's ability to deduct interest on the Junior Subordinated Debentures,
which may in turn permit the Corporation to cause a redemption of the Capital
Securities. See "-- Possible Tax Law Changes." The authorities on which this
summary is based are subject to various interpretations, and it is therefore
possible that the United States federal income tax treatment of the purchase,
ownership and disposition of Capital Securities may differ from the treatment
described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF ISSUER
In connection with the issuance of the Old Capital Securities, Sullivan &
Cromwell have rendered their opinion to the effect that, under then current law
and assuming compliance with the terms of the Trust Agreement and certain other
factual matters, the Issuer will not be classified as an association taxable as
a corporation for United States federal income tax purposes. As a result, each
beneficial owner of Capital Securities (a "Securityholder") will be required to
include in its gross income its pro rata share of the interest income, including
premium or original issue discount, paid or accrued with respect to the
Subordinated Debentures whether or not cash is actually distributed to such
Securityholder. See -- "Interest Income and Original Issue Discount."
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury Regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a contingency that
stated interest will be not be timely paid that is "remote" because of the terms
of the relevant debt instrument will be ignored in determining whether a debt
instruments is issued with original issue discount ("OID"). As a result of the
terms and conditions of the Junior Subordinated Debentures that prohibit certain
payments with respect to the Corporation's capital stock and indebtedness if the
Corporation elects to extend interest payment periods, the Corporation believes
that the likelihood of its exercising its option to defer payments is remote.
Based on the foregoing, the Corporation believes that the Junior Subordinated
Debentures will not be considered to be issued with OID at the time of their
original issuance, and accordingly, a Securityholder should include in gross
income such holder's allocable share of interest on the Junior Subordinated
Debentures. The following discussion will assume that unless and until the
Corporation exercises its option to defer any payment of interest, the Junior
Subordinated Debentures will not be treated as issued with OID.
Under the Regulations, if the Corporation exercised its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter to be treated as OID as long as the Junior
Subordinated Debentures remained outstanding. In such event, all of the
Securityholder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for as OID on an economic accrual basis regardless
of such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income. Consequently, a Securityholder
would be required to include in gross income OID even though the Corporation
would not make any actual cash payments during an Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service and it is possible that the
Internal Revenue Service could take a position contrary to the interpretation
herein.
Because income on the Capital Securities will constitute interest or OID,
corporation Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect tot he Capital
Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL SECURITIES
Under current law, a distribution by the Issuer of the Junior Subordinated
Debentures as described herein under "Description of New
Securities -- Description of Capital Securities -- Liquidation Distribution upon
Termination" will be non-taxable and will result in the Securityholder receiving
directly his pro rata share of the Junior Subordinated Debentures previously
held indirectly through the Issuer, with a holding period and aggregate tax
basis equal to the holding period and aggregate tax basis such Securityholder
had in its Capital Securities before such distribution. If, however, the
liquidation of the Issuer were to occur because the Issuer is subject to United
States federal income tax with respect to income accrued or received on the
Junior Subordinated Debentures, the distribution of Junior Subordinated
Debentures to Securityholders by the Issuer would be a taxable event to the
Issuer and each Securityholder, and each Securityholder would recognize gain or
loss as if the Securityholder had exchanged its Capital Securities for the
Junior Subordinated Debentures it received upon the liquidation of the Issuer. A
Securityholder will include interest in respect of Junior Subordinated
Debentures received from the Issuer in the manner described above under
"-- Interest Income and Original Issue Discount".
SALES OR REDEMPTION OF CAPITAL SECURITIES
A Securityholder that sells (including a redemption for cash) Capital
Securities will recognize gain or loss equal to the difference between its
adjusted tax basis in the Capital Securities and the amount realized on the sale
of such Capital Securities. Assuming that the Corporation does not exercise its
option to defer payment of interest on the Junior Subordinated Debentures, a
Securityholder's adjusted tax basis in the Capital Securities generally will be
its initial purchase price. If the Junior Subordinated Debentures are deemed to
be issued with OID as a result of the Corporation's deferral of any interest
payment, a Securityholder's adjusted tax basis in the Capital Securities
generally will be its initial purchase price,
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increased by OID previously includible in such holder's gross income to the date
of disposition and decreased by distributions or other payments received on the
Capital Securities since and including the date of the first Extension Period.
Such gain or loss generally will be a capital gain or loss (except to the extent
any amount realized is treated as a payment of accrued interest with respect to
such Securityholder's pro rata share of the Junior Subordinated Debentures
required to be included in income) and generally will be a long-term capital
gain or loss if the Capital Securities have been held for more than one year.
Should the Corporation exercise its option to defer any payment of interest
on the Junior Subordinated Debentures, the Capital Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid interest
with respect to the underlying Junior Subordinated Debentures. In the event of
such a deferral, a Securityholder who disposes of its Capital Securities between
record dates for payments of distributions thereon will be required to include
in income as ordinary income accrued but unpaid interest on the Junior
Subordinated Debentures to the date of disposition and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
Securityholder's adjusted tax basis, such holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
Although the matter is not free from doubt, an exchange of Old Capital
Securities should not be taxable to Securityholders.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid and OID accrued on the Capital
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders) will be reported to the Internal Revenue Service.
"Backup" withholding at a rate of 31 percent will apply to payments of interest
to non-exempt United States Persons unless the Securityholder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Capital Securities to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
It is anticipated that income on the Capital Securities will be reported to
holders on Form 1099 and mailed to holders of the Capital Securities by January
31 following each calendar year.
POSSIBLE TAX LAW CHANGES
As discussed above, the Revenue Reconciliation Bill would, among other
things, generally have denied interest deductions for interest on an instrument
issued by a corporation that has a maximum term of more than 20 years and that
is not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that is
not shown as indebtedness on the issuer's consolidated balance sheet. The
above-described provision of the Revenue Reconciliation Bill was proposed to be
effective generally for instruments issued on or after December 7, 1995. If a
similar provision were to apply to the Junior Subordinated Debentures, the
Corporation would be unable to deduct interest on the Junior Subordinated
Debentures. However, on March 29, 1996, the Chairmen of the Senate Finance and
House Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's legislative
proposals, if adopted, would be no earlier than the date of appropriate
Congressional action. Under current law, the Corporation will be able to deduct
interest on the Junior Subordinated Debentures. Although the 104th Congress
adjourned without enacting the above-described provisions of the Revenue
Reconciliation Bill, there can be no assurance that current or future
legislative proposals or final
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legislation will not adversely affect the ability of the Corporation to deduct
interest on the Junior Subordinated Debentures. Accordingly, there can be no
assurance that a Tax Event will not occur. See "Description of Capital
Securities -- Redemption" and " -- Distribution of Subordinated Debentures to
Holders of Capital Securities."
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to ERISA (a "Plan"), should consider the fiduciary standards of ERISA in
the context of the Plan's particular circumstances before authorizing an
investment in the Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the documents
and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are
not subject to the requirements of ERISA or Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the United
States Department of Labor (the "DOL"), the assets of the Issuer would be deemed
to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code
if "plan assets" of the Plan were used to acquire an equity interest in the
Issuer and no exception were applicable under the Plan Assets Regulation. An
"equity interest" is defined under the Plan Assets Regulation as any interest in
an entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in the
Issuer, less than 25% of the value of each class of equity interests in the
Issuer were held by Plans, other employee benefit plans not subject to ERISA or
Section 4975 of the Code (such as governmental, church and foreign plans), and
entities holding assets deemed to be "plan assets" of any Plan (collectively,
"Benefit Plan Investors"). No assurance can be given that the value of the
Capital Securities held by Benefit Plan Investors will be less than 25% of the
total value of such Capital Securities at the completion of the initial offering
or thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions to this exception. All of the Common
Securities will be purchased and held by the Corporation.
Certain transactions involving the Issuer could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Capital Securities were acquired with "plan
assets" of such Plan and assets of the Issuer were deemed to be "plan assets" of
Plans investing in the Issuer. For example, if the Corporation is a Party in
Interest with respect to an investing Plan (either directly or by reason of its
ownership of its banking or other subsidiaries), extensions of credit between
the Corporation and the Issuer (as represented by the Junior Subordinated
Debentures and the Guarantee) would likely be prohibited by Section 406(a)(1)(B)
of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive relief were
available under an applicable administrative exemption (see below).
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the Capital Securities, assuming that
assets of the Issuer were deemed to be "plan assets" of Plans investing in the
Issuer (see above). Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts),
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PTCE 91-38 (for certain transactions involving bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company separate
accounts), and PTCE 84-14 (for certain transactions determined by independent
qualified asset managers).
Because the Capital Securities may be deemed to be equity interests in the
Issuer for purposes of applying ERISA and Section 4975 of the Code, the Capital
Securities may not be purchased or held by any Plan, any entity whose underlying
assets include "plan assets" by reason of any Plan's investment in a Plan Asset
Entity or any person investing "plan assets" of any Plan, unless such purchaser
or holder is eligible for the exemptive relief available under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14 or another applicable exemption. Any purchaser or
holder of the Capital Securities or any interest therein will be deemed to have
represented by its purchase and holding thereof that it either (a) is not a Plan
or a Plan Asset Entity and is not purchasing such securities on behalf of or
with "plan assets" of any Plan or (b) is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption with respect to such purchase or holding. If a purchaser or holder of
the Capital Securities that is a Plan or a Plan Asset Entity elects to rely on
an exemption other than PTCE 96-23, 95-60, 91-38, 90-1 or 84-14, the Corporation
and the Issuer may require a satisfactory opinion of counsel or other evidence
with respect to the availability of such exemption for such purchase and
holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the Capital
Securities on behalf of or with "plan assets" of any Plan consult with their
counsel regarding the potential consequences if the assets of the Issuer were
deemed to be "plan assets" and the availability of exemptive relief under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Issuer has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances described herein) or, if earlier,
when all such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "The Exchange Offer -- Resales of New Capital Securities."
The Issuer will not receive any cash proceeds from the issuance of the New
Capital Securities offered hereby. New Capital Securities received by
broker-dealers for their own accounts in connection with the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
Capital Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Capital Securities. Any broker-dealer that resells
New Capital Securities that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates in
a distribution of such New Capital Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Capital Securities and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
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This Prospectus may be used by Key Capital Markets, Inc., an affiliate of
the Corporation, in connection with offers and sales related to market-making
transactions in New Securities effected from time to time after the commencement
of the offering to which this Prospectus relates. Key Capital Markets, Inc. may
act as principal or agent in such transactions, including as agent for the
counterparty when acting as principal or as agent for both counterparties, and
may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both. Such sales will be made
at prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
Key Capital Markets, Inc. is a wholly owned subsidiary of the Corporation
and an affiliate of the Issuer.
The Corporation has been advised by Key Capital Markets, Inc. that, subject
to applicable laws and regulations, Key Capital Markets, Inc. may make a market
in New Securities. However, they are not obligated to do so and any
market-making may be discounted at any time without notice. In addition, such
market-making activity is subject to the limits imposed by the Securities Act,
the Exchange Act and federal banking laws and regulations. There can be no
assurance that an active trading market will be sustained.
The Corporation may agree to indemnify Key Capital Markets, Inc. with
respect to certain liabilities in connection with this Prospectus, including
liabilities under the Securities Act.
VALIDITY OF NEW SECURITIES
Certain matters of Delaware law relating to the validity of the New Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Corporation and the Issuer. The validity of the New Junior
Subordinated Debentures and the New Guarantee will be passed upon for the
Corporation by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell will
rely upon the opinion of Richards, Layton & Finger as to matters of Delaware law
and the opinion of Corporation Counsel as to matters of Ohio law. Sullivan &
Cromwell regularly perform legal services for the Corporation and its
subsidiaries. As of the date hereof, the General Counsel and the Senior Managing
Counsel of the Corporation currently authorized to render the aforementioned
opinion on behalf of the Corporation each owned approximately 5,300 shares of
the Corporation's common stock, including shares held under options that are
immediately exercisable.
Certain matters relating to United States federal income tax considerations
will be passed upon for the Corporation by Sullivan & Cromwell, as special tax
counsel to the Corporation and the Issuer.
EXPERTS
The consolidated financial statements of KeyCorp and subsidiaries
incorporated by reference in KeyCorp's Annual Report (Form 10-K) for the year
ended December 31, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1996 and 1995, for the
three- and six-month periods ended June 30, 1996 and 1995 and for the three- and
nine-month periods ended September 30, 1996 and 1995 (incorporated herein by
reference), Ernst & Young LLP have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports, included in the Corporation's
Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 1996,
June 30, 1996 and September 30, 1996 (and incorporated herein by reference),
state that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted considering the limited nature of the
review procedures applied. The independent auditors are not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited interim financial information because that report is not a "report" or
a "part" of the Registration Statement prepared or certified by the auditors
within the meaning of Sections 7 and 11 of the Securities Act.
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